PublicInvest: OPR cut likely in Q3, REITs outlook Neutral
KUALA LUMPUR: Public Investment Bank (PublicInvest) has revised its base case to include a 25 basis point cut in the Overnight Policy Rate (OPR) in the third quarter of 2025, subject to the continuation of reciprocal tariff suspensions and broadly stable domestic conditions.
Although Bank Negara Malaysia (BNM) kept the OPR unchanged at 3.00 per cent in its recent monetary policy meeting, the central bank adopted a more accommodative stance by lowering the Statutory Reserve Requirement (SRR) from 2 per cent to 1 per cent, effective May 16. This move is expected to release about RM19 billion into the banking system to support economic growth amid rising external uncertainties, particularly ongoing trade tensions linked to US President Donald Trump's tariff policies.
According to PublicInvest, the central bank's May policy statement cited several downside risks, including a sharper slowdown in key export markets, weaker consumer and business sentiment, and softening commodity output.
The firm noted that the inclusion of "weaker sentiment" may indicate the early stages of a slowdown in private consumption and investment.
While the OPR remains unchanged for now, PublicInvest said the SRR cut represents a proactive measure to ease liquidity pressures and pre-emptively safeguard domestic growth.
Despite the policy shifts, the impact on earnings for real estate investment trusts (REITs) under PublicInvest's coverage, particularly those with floating-rate loans, is expected to be limited.
The firm estimates a potential 1 per cent to 2 per cent reduction in interest costs should a 25 bps OPR cut materialise.
"We keep our earnings estimates unchanged for now. Although we still believe the sector is fairly valued for now and maintain our Neutral stance, the attractive dividend yield of around 5 per cent looks sustainable," the firm said in a note.
KL-listed REITs are currently offering an average gross yield of about 6 per cent, reinforcing the sector's appeal amid market volatility.
Among its REIT coverage, PublicInvest has reiterated its preference for Sunway REIT (SREIT), citing its diversified asset portfolio and ambitious growth plan under the Transcend 27 roadmap. The strategy targets portfolio expansion from RM10 billion to RM14 billion to RM15 billion within the next two to three years.
SREIT is expected to benefit from full-year earnings contributions in FY2025 from recently acquired assets, including 163 Retail Park in Mont Kiara, Kluang Mall in Johor, and an industrial facility in Prai, Penang.
Additionally, the reconfiguration of Oasis retail space at Sunway Pyramid, down to 260,000 sq ft from 320,000 sq ft as of November 2024, is anticipated to enhance rental efficiency.
In light of these developments, PublicInvest has raised SREIT's target price to RM2.10 (from RM1.80), reflecting an implied forward dividend yield of approximately 5.5 per cent based on FY2026 estimates.
PublicInvest also noted that while Malaysia's retail sales are on a recovery path, rental reversions for malls in key urban locations are likely to remain flat in the near term. This is due to incoming retail supply and ongoing market uncertainty stemming from renewed trade tensions.
"That said, we believe those established malls with a good tenant mix are expected to stay resilient and hence occupancy rates are likely to remain steady."
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