More investors are expected to be drawn to real estate investment trusts (REITs) as the yield of Malaysian Government Securities (MGS) falls, reported the Borneo Post.
MIDF Amanah Investment Bank (MIDF Research) revealed that the drop in MGS yield is positive for REITs as it makes the latter more attractive to investors due to better returns.
Amidst the recent strengthening of the ringgit and growing inflows of foreign funds, the yield of the 10-year MGS declined to less than 3.9 percent in May compared to 4.1 percent in the previous month. Nowadays, the figure stands at about 3.86 percent, shy of the five-year average of 3.8 percent.
“Nevertheless, we reckon that further decline in MGS yield is required to provide stronger catalyst to REITs. At this juncture, we maintain our MGS yield assumption at four percent,” said MIDF Research in a report on Tuesday (6 June).
For the first quarter of 2017, the earnings of all seven REITs tracked by MIDF Research were in line within its expectations. However, the research house maintained its neutral stance on the REIT segment as three entities recorded positive growth, while four performed negatively.
In particular, Sunway REIT, IGB REIT, and Axis REIT witnessed an increase in net profit, while that for AmanahRaya REIT, Pavilion REIT, CMMT, and KLCCP Stapled Group declined.
“Sunway REIT reported the highest quarterly earnings growth of 8.6 percent year-on-year in Q1 2017, while its cumulative earnings grew 5.6 percent This was mainly driven by the higher earnings contribution from Sunway Pyramid, Sunway Carnival, and Sunway Putra Mall.”
This was followed by IGB REIT’s annual net profit gain of 3.5 percent in the first quarter, on the back of higher earnings from Gardens Mall and Mid Valley Megamall.
“Our top pick for the sector is Sunway REIT as we are positive on its retail division which underpinned by the resilient performance of Sunway Pyramid shopping mall,” noted MIDF Research, adding that its office properties are expected to recover this year.
“We also have Buy call on AmanahRaya REIT as we like its asset portfolio with education property exposure and attractive dividend yield of 5.8 percent. We are also positive on the entry of Kenedix, a Japanese real estate asset management company, which should bode well for the asset management prospect for the REIT.”
Given that the earnings of the seven REITs did not deviate from its forecast, MIDF Research did not change the target prices of their respective shares.
“Recommendations for REITs under our coverage remain intact. REITs with buy calls include Sunway REIT (RM1.88) and AmanahRaya REIT (TRM1.15), while REITs with neutral calls are Axis REIT (RM1.68), IGB REIT (RM1.73), KLCCP Stapled Group (RM7.60), CMMT (RM1.69), and Pavilion REIT (RM1.77).”
Image sourced from The Star
Radin Ghazali, Content Writer at PropertyGuru, edited this story. To contact her about this or other stories email radin@propertyguru.com.my
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