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Analyst trims earnings forecasts for Sentral REIT on weaker 2Q results

KUALA LUMPUR: Hong Leong Investment Bank Research (HLIB Research) has trimmed its earnings forecasts for Sentral REIT after its second quarter (2Q) 2023 core net profit of RM17.6 million came below expectations.

The research unit said the results were below its estimates (45 per cent) but within street estimates (50 per cent) due to higher-than-expected property operaing expenditure and finance costs.

"We trim our financial year 2023 (FY23)/FY24/FY25 forecasts by -7.0 per cent/-6.6 per cent/6.9 per cent as we pencil in higher utilities and finance costs assumptions," the research unit said.

HLIB Research also cut the company's target price to 75 sen from 81 sen, while maintaining its Hold call on the stock.

As office owners are grappling with intense competition in the office market, HLIB Research believes rental rates for office space at Klang Valley will remain suppressed going forward.

"Hence, we see muted earnings performance for office REITs as rising cost pressures were not able to be passed down to tenants via upward revision in rental rates," it said.

On a positive note for Sentral, HLIB Research said 10 per cent of total net lettable area (NLA), is due for expiry in 2023, half of which has been renewed and management does not foresee any major issues in renewing the balance.

Also, reserach unit reiterates its optimism on the ongoing acquisition of Menara CelcomDigi due to its long-term single tenancy structure as well as attractive rental yield (8 per cent).

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