KUALA LUMPUR: Affin Hwang Capital is cautious on the outlook of KIP Real Estate Investment Trust's (KIP Reit) micro tenants and potential earnings per unit (EPU) dilution.
Affin Hwang said the company reported a "mediocre" set of results for the first quarter (Q1) of 2023 whereby realised net profit grew by 5.0 per cent year-on-year (YoY) to RM8.8 million on the back of higher revenue.
The strong revenue growth was largely attributable to a low base in Q1FY22 when KIP Reit had a reduced promotional area income due to restrictions on activities during the Movement Control Order.
Notwithstanding the higher realised net profit, KIP Reit's Q1FY23 distribution per unit (DPU) fell by 6.5 per cent YoY to 1.45 sen due to an increase in the number of issued units following the completion of a recent private placement.
"While we like KIP Reit for its assets with differentiated market positioning and the management's initiative to deliver a sustainable DPU to unitholders, we are cautious on the outlook of micro tenants over recessionary worries and potential EPU dilution from the proposed acquisition of industrial properties in Pulau Indah," it said.
Downside risks to the firm's view were weaker-than-expected economic growth, deterioration in rental reversion, earnings disappointment, steeper-than-expected hike in Overnight Policy Rate and global bond yields.
Affin Hwang said the upsides were stronger-than-expected retail recovery which translated to higher-than-expected rental reversion for the company's tenants and stronger earnings outlook.
Affin Hwang maintained "Hold" on the company with a target price of 97 sen.