Investment Highlights

• We maintain our HOLD recommendation on Sunway REIT (SREIT) with an unchanged fair value of RM1.68 based on FY19 target yield of 6%. We keep our FY19-21F numbers unchanged at RM296.9mil, RM310.2mil and RM323.3mil respectively.

• SREIT recorded its 1QFY19 revenue of RM143.7mil (+1.8% YoY and +5.5% QoQ), mainly contributed by Sunway Pyramid Shopping Mall but partially offset by the other malls.

• SREIT’s 1QFY19 distributable income of RM73.0mil (-7.3% YoY) came in within expectations at 24.6% and 24.4% of our full-year forecast and the full-year consensus estimates respectively. NPI eased marginally by 0.4% YoY to RM110.5mil due to higher fit-out cost and maintenance expenses. SREIT recommended a DPU of 2.48 sen as compared with 2.67 sen YoY (QoQ: 2.15sen).

• The retail segment reported a revenue of RM104.9mil (+1.3% YoY) supported by Sunway Pyramid Shopping Mall which benefitted from the tax holiday period. Meanwhile its NPI fell by 0.7% YoY to RM77.7mil due to higher fit-out cost and maintenance expenses. Sunway Pyramid Shopping Mall’s revenue and NPI grew by +3.1% and 3.2% to RM80.3mil RM64.1mil respectively driven by higher average net rent per sq ft. Occupancy rates at Sunway Pyramid, Carnival and Putra Mall remained stable at 98.2%, 98.2% and 90.8% respectively (vs. 98.8%, 95.1% and 86.9% YoY).

• The hotel sector’s 1QFY19 revenue and NPI slid by 2.8% and 7.4% to RM22.6mil and RM20.5mil respectively, mainly due to softer demand from leisure and business travellers on the back of lower tourist arrivals. Sunway Resort Hotel & Spa recorded softer average occupancy rate of 67.6% in 1QFY18 versus 77.9% YoY, mainly attributable to ongoing refurbishment of the grand ballroom and meeting rooms which is scheduled to be completed by 2QFY19.

• The office sector’s full-year revenue and NPI expanded by 13.0% and 26.5% to RM9.1mil and 5.1mil respectively on the back of positive rental reversion for Menara Sunway, and higher occupancy rates for both Menara Sunway and Sunway Putra Tower.

• Debt-to-total assets ratio increased to 38% vs. 35% YoY mainly due to higher investing activities. Nevertheless, it is still below the regulatory threshold of 50%.

Source: AmInvest Research - 2 Nov 2018