4QFY22 core net profit of RM14.3m (-12.1% QoQ, -4.0% YoY) brought FY22’s sum to RM61.6m (-3.5%). The results came in within our full year expectations at 96%. FY22 top line stayed largely flattish YoY. However, rising finance costs due to OPR hikes have led to a slight decline of its core bottom line. Average portfolio occupancy fell to 79.8% (FY21: 82%) while gearing stood at 39.1%. Moving into 2023, the office market remains taxing in view of the excessive supplies of office space, especially in the Klang Valley. Hence, UOA REIT’s rental reversion is expected to remain pressured for its future tenancy renewal. Besides, 47.4% of NLA is due for expiry in 2023, posing limited upside on occupancy and rental rates. We retain our HOLD call and TP of RM1.10.

Inline. 4QFY22 core net profit of RM14.3m (-12.1% QoQ, -4.0% YoY) brought FY22’s sum to RM61.6m (-3.5%). The core net profit was derived after excluding impairment losses of financial assets and amortized cost pursuant to MFRS 9 (-RM0.4m). The results came in within ours and street full year expectations at 96%.

Dividend. Declared 4Q22 DPS of 4.32 sen, bringing FY22 to 8.6 sen, which is the same as FY21.

QoQ. Revenue stayed flattish (-1.7%) while property opex increased 22.9% which led to a decline in NPI (-7.7%). Meanwhile, total expenses rose +3.5% mainly driven by higher borrowing costs (+5.1%) due to OPR hikes. All in all, core net profit declined -12.1%.

YoY/YTD. Top line (+0.4% YoY, -1.7% YTD) and property opex (+2.2% YoY, -2.2% YTD) stayed largely flattish. In turn, NPI remained stable (-0.1% YoY, -1.5% YTD). Nonetheless, core bottom line fell (-4.0% YoY, -3.7% YTD) due to rising financing costs (+12.4% YoY, +4.6% YTD).

Occupancy and gearing. With 6 properties, the average portfolio occupancy declined to 79.8% (FY21: 82%). Gearing stood at 39.1% (FY21: 39.4%).

Outlook. Moving into 2023, the office market remains taxing in view of the excessive supply of office space, especially in Klang Valley. Hence, UOA REIT’s rental reversion is expected to stay flattish for its near-term tenancy renewal. To note, 47.4% of NLA is due to for expiry in 2023. In light of that, we expect limited upside for UOA REIT in terms of occupancy and rental rates.

Forecast. We maintain our forecasts as results were in line.

Maintain HOLD, TP: RM1.10. While we view UOA REIT as an attractive divvy name, we remain wary of the market challenges, limiting upside for its rental and occupancy rate of its properties. On the balance, we maintain our HOLD call with an unchanged TP of RM1.10. To note, our TP is based on FY23 DPU on targeted yield of 8.8% derived from 5-year historical average yield spread between UOA REIT and MAG10YR.

Source: Hong Leong Investment Bank Research - 20 Jan 2023