KUALA LUMPUR: The defensive earnings of high-quality Malaysian REITs make them an ideal investment proposition during economic uncertainty, says Affin Hwang Capital research.
"We believe the high-quality MREITs are an ideal investment, given current market conditions – defensive assets are preferred during economic uncertainty while failing bond yields (MGS) should support valuations," it said in a note, while reiterating its overweight rating on the counters.
The research house said the dovish stance from major central banks should lead to further rate cuts and boost the appeal of MREITs as a yield play.
Furthermore, it is cautious on the outlook of the KLCI market, where corporate earnings remain negative and leave limited ground for the index to trade above its current price-earnings multiple.
Affin Hwang noted that investors are generally neutral or positive on the MREITs despite their stellar year-to-date share-price performance.
"Investors’ major complaint lies in the lack of trading liquidity, while their key concerns hover around the oversupply of properties (retail malls, offices, hotels) and the impact of slowing economic growth to vacancy rates / rental growth," it said.
It recommended that investors stick to winners with prime assets and proven earnings track records.
"Our top picks are KLCC (BUY, TP RM8.55) for its defensive earnings and Axis REIT (BUY, TP RM2.04) for its high yield of 5.4%. We also like Sunway REIT (BUY, TP RM2.06) for its diversified asset base," it said.
Meanwhile, Affin Hwang has hold ratings on Pavilion REIT and IGB Reit given that weak consumer sentiment may dampen their rental growth despite high occupancy in their prime shopping malls.
"Importantly, at 4.8-4.9% 2019E yields, we believe investors have largely priced-in the positives," it said.
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