Affin Hwang Investment Bank Research has kept its “neutral” rating on the REIT sector.
PETALING JAYA: Recently announced government initiatives are expected to support the retail real estate investment trust (REIT) sector but the allure of REITs will likely be dampened by the high bond yields, uncertainties in the timing and magnitude of the US Federal Reserve rate cuts.
Affin Hwang Investment Bank Research has kept its “neutral” rating on the REIT sector based on the factors mentioned above.
It added that REITs’ valuation looks fair based on a 2024 sector yield of 6.1%, with top sector picks including KLCCP Stapled Group with a target price of RM9.20 and YTL Hospitality-REIT with a target price of RM1.38.
“While we anticipate the rationalisation of the RON 95 fuel subsidy, expected to roll out in the fourth quarter of 2024 (4Q24), to provoke a knee-jerk reaction leading to a tightening of consumer spending and indirectly impacting the retail market, this effect is likely to be mitigated by other government measures,” the research house said.
It added that the introduction of the Employees Provident Fund Account 3 and a 13% salary hike for civil servants are projected to inject RM15bil and RM10bil into the economy, respectively.
The research house believes these favourable government initiatives will help to ease the pressure of a rising cost of living, support consumer spending and indirectly support the retail market.
On the international front, Affin Hwang Research expects the weak ringgit and visa-free entry from China and India to drive higher tourist arrivals, benefiting retail spaces and increasing foot traffic and sales.
It added that Malaysia’s extension of visa-free exemption for China tourists till end-2026 will help in the recovery of tourist receipts, particularly from high-spending tourists from China.
“Although Malaysia’s tourist receipts are still 83% of pre-pandemic levels, we believe this extended visa exemption will help to significantly bolster tourism revenues in the near term,” the research house added.
For the second half of the year, Affin Hwang Research anticipates competition to cool down with no large mall openings.
“However, we remain cautious of a potential impact on existing shopping malls under our coverage with the upcoming launch of 118 Mall in 3Q25, to be located at the base of the second tallest building in the world named Merdeka 118,” it added.
The research house highlighted key landmarks of Merdeka 118 include Merdeka Boulevard at 118 Park, Park Hyatt KL Hotel, Stadium Merdeka and Masjid Al-Sultan Abdullah, along with direct access to MRT stations, which are expected to draw large crowds to 118 Mall.
Another upcoming addition to the prime shopping mall scene is IOI City Mall Phase 3 (slated for launch in 2029), which is positioned as a high-end section distinct from the existing Phase 1 and Phase 2.
