SENTRAL: Core Earnings Align with Forecasts, Positive Outlook for Growth

The company’s core net profit for FY25 reached MYR77.3m, aligning closely with expectations by meeting 96% of the investment bank’s and 95% of consensus full-year estimates. This performance was achieved amidst a challenging office sub-sector backdrop. Despite the stability in core profitability, the reported net profit saw a significant decline of 25.6% year-on-year, primarily attributed to a one-off disposal loss of MYR17.9m from Wisma Sentral Inai.

Performance Review

In FY25, revenue experienced a marginal decline of 0.9% year-on-year, totaling MYR189.4m, largely due to a lower occupancy rate at Menara Shell following a key tenant’s exit. Net property income (NPI) also fell by 1.9% year-on-year to MYR143.9m, impacted by higher operating expenses from one-off maintenance works undertaken during the year. Despite these headwinds, the core profit margin remained relatively stable at 40.8% (FY24: 41.8%). Distributable income per unit (DPU) for the year declined by 3.3% to 6.2 sen. The company’s gearing remained stable at approximately 46%.

Future Outlook

Looking ahead, the investment bank anticipates an improvement in performance for the current year. This optimism is driven by an expected recovery in the occupancy rate at Menara Shell to approximately 88% (up from 82% in mid-2024), bolstered by the onboarding of two new multi-national corporation tenants in the second half of 2025. Additionally, the full-year earnings contribution from the newly acquired retail asset, Arcoris Plaza (acquisition completed in December 2025), is expected to provide an uplift to earnings. However, vigilance is advised regarding the vacancy at Sentral Building 2 (SB2), as replacement leasing may require time given current market conditions. Rental reversion is projected to remain in the low-to-mid single-digit range, reflecting already-high base rental rates. The proceeds from the Wisma Sentral Inai disposal are expected to provide significant headroom, enabling the pursuit of MYR80-100m in asset acquisitions within non-office segments, thereby supporting the company’s diversification strategy.

Following the results announcement, the investment bank has trimmed its FY26F earnings forecast by 3% and adjusted its target price to MYR0.91 (from MYR0.92 previously), reflecting slower-than-expected tenant replacements at SB2. This new target price implies an FY26F dividend yield of approximately 8%. The BUY recommendation is maintained, with key downside risks identified as non-renewal of leases and lower-than-expected rental reversions.