Resilient rental income & increase in footfall a boost to REITs performance – Maybank Research 

INVE$T | Market Sentiments

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According to Maybank Research, there are expectations of an eventual earnings recovery for retail and hospitality real estate investment trusts (REITs) in Malaysia this year. This will be driven by lower rental assistance and the soon re-opening of international border gates. It remains selectively positive on the REITs with industrial properties, prime malls and office with long-term tenants where earnings will be supported by resilient rental income and sustained occupancy rates. The recent Q42021 results showed the REITs were mostly performing above expectations. The average core net profit growth seen were to the tune of 31% year-on-year (y-o-y) and 99% quarter-on-quarter. Growth was mainly supported by the retail assets due to easing of movement restrictions and also long-term office tenants. However, there is limited rental growth potential over the short-to-medium term for retail malls and offices. Given the expectations, it has maintained its “neutral” call on the sector. Its selective buy calls are on Axis REIT, Sentral REIT, Pavilion REIT and KLCC REIT. The sector offers 2022 and forecast 2023 average net dividend per unit yields of 5.5% and 6.7% respectively. Their top buy pick is Axis REIT which offers a 5.6% forecast net yield for 2022. Sentral REIT, Pavilion REIT and KLCC REIT offers 7.6%, 5.2% and 4.9% forecast yields respectively. Also there was a recovery seen in the retail footfall levels with the easing of pandemic restrictions. The retail segment saw encouraging recovery in retail footfalls and retail sales, with prime malls recording almost pre-pandemic levels, boosted by the festive seasons. Core net profit for REITs with shopping malls saw a jump of up to 41% y-o-y quarterly earnings, mainly due to lower rental rebates. The research house expects a progressive recovery for the retail sub-segment this year from a reduction in rental assistance. However, outlook for rental reversion remains muted. Meanwhile, any overnight policy rate which may rise at the end of this year would marginally nudge lower selected REITs bottom lines by an average of 1%. As at end-2021, their coverage’s debt base was at a circa 47% comprised of floating rate debt, with average interest cost in 2021 having ranged between 2.8% to 4.3%. 

Listed companies’ market cap climbed to RM1.81 trillion – Bursa Research  

According to Bursa Malaysia Bhd’s research arm Bursa Digital Research, the total market capitalisation of companies listed on the bourse climbed 4.4% to RM1.81 trillion as at Feb 28, 2022 from a month earlier due to buying in the energy and plantation sectors as crude oil price topped US$100 per barrel while crude palm oil breached RM7,000 a tonne. In its latest trade performance and fund flow report, it states that in February 2022, average daily trading volume (ADV) across Bursa rose 36.8% to RM2.77 billion, with growth recorded across all investor segments. Foreign investors accelerated the buying with an inflow of RM2.84 billion (+RM2,843 million) compared with +RM332 million in January. 

MOF, BNM, SC to formulate framework on consumer credit regulation 

According to Deputy Finance Minister II Yamani Hafez Musa, the Ministry of Finance (MoF), Bank Negara Malaysia (BNM) and the Securities Commission (SC) are spearheading collaborations with relevant agencies to formulate a comprehensive legal framework to regulate all consumer credit activities, including the “Buy Now Pay Later” (BNPL) scheme. The framework would be set in place with the enactment of the Consumer Credit Act (CCA) this year. With the CCA, all credit and BNPL providers will be subject to relevant regulations that also encompass risk control and consumer protection as well as the appropriate Shariah-compliance rules in performing BNPL activities. The government expects to see more new innovations in line with the digital acceleration but these innovations would need to be well regulated. He said this during the Dewan Rakyat sitting in reply to a question from Lukanisman Awang Sauni (Sibuti-GPS) on the BNPL purchasing method on the online trading platforms, stressing that currently, BNPL activities are not being regulated by any agency. As such, consumers are advised to understand the BNPL’s terms and conditions, ensure that instalment payments are made in full and on time, and monitor their BNPL commitments to ensure that their personal debts remain manageable.  

Eye On The Markets 

This week, on Friday (18Mar), the Ringgit opened at 4.1955 against the USD from 4.1970 on Monday (14Mar). Meanwhile, the Ringgit was 3.0994 to the Sing Dollar on Friday (18Mar). On Monday (14Mar), the FBM KLCI opened at 1570.70. As at Friday (18Mar) 10:00am, the FBM KLCI is up 14.40 points for the week at 1585.10. Over in US, the overnight Dow Jones Industrial Average closed up 417.66 points (+1.23%) to 34,480.76 whilst the NASDAQ added 178.23 points (+1.33%) to 13,614.78. 

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