"We lower our FY20/21/22E earnings by 20/1/1%, after mainly assuming lower rental income and higher opex across its malls," said the research house. It dropped its target price to RM1.57 from RM1.60 previously.
In 1Q20, Pavilion REIT's core net profit was 50% lower year-on-year at RM34.6mil due to the 14 days rent-free period provided to its non-essential mall tenants during the movement control order.
Income was also impacted from lower percentage rent and advertising revenue, in line with the drop in footfall and tenant sales due to the Covid-19 pandemic.
Among its key malls, Pavilion KL and Elite Pavilion Mall recorded 97% and 89% occupancy respectively.
"Beyond the anticipated near-term negatives from the Covid-19 pandemic, we continue to favour Pavilion KL and Elite Pavilion Mall’s earnings outlook which will be largely supported by its prominent location and high footfall traffic.
"Nonetheless, we are still negative on Da Men, which faces competition from surrounding malls and this would limit future rental reversions and increases occupancy risks," said Maybank IB.
The research house expects a weaker 2Q20 retail performance due to the MCO and Covid-19 outbreak. It assumes an average of 9.5 months of rental income in FY20, a 30% y-o-y drop in turnover rent and rental reversions of negative-10% to flat.