Investment Highlights

• We maintain our BUY recommendation on Sunway REIT (SREIT) with an unchanged fair value of RM2.16 based on a target yield of 5.0%. We keep our FY20F–22F numbers unchanged at RM308.3mil, RM326.7mil and RM340.2mil respectively.

• SREIT’s 1QFY20 distributable income of RM73.7mil (+1.0% YoY) came in within expectation at 24% of ours and consensus’ full-year estimates. 1QFY20 revenue grew by 8.1% YoY to RM155.4mil mainly attributable to the contribution from the newly acquired Sunway University & College campus and better performance across all segments, especially hotels.

• Net property income (NPI) increased by 7.7% to RM119.1mil, in line with revenue growth. However, distributable income is flattish at RM73.7mil (+1% YoY) after distribution to perpetual holders amounting to RM5.1mil. SREIT recommended a DPU of 2.50 sen compared to YoY’s 2.48 sen.

• The retail segment reported a 1QFY20 revenue of RM105.5mil (+0.6% YoY) supported by Sunway Carnival Mall due to higher promotional income. However, the segment’s NPI fell by 3% YoY to RM75.3mil due higher property operating expenses (+11%). Occupancy rates at Sunway Pyramid, Carnival and Putra Mall remained stable at 98.2%, 98.2% and 90.8% respectively (vs. 97.3%, 96.2% and 89.1% YoY).

• The hotel sector’s FY19 revenue and NPI rose by 5% and 7% to RM23.7mil and RM22.0mil respectively, contributed by higher income in most of the hotel properties while average occupancy rate is higher at 80.1% vs. YoY’s 72.0%.

• The office sector’s revenue and NPI expanded by 12% and 11% to RM10.1mil and 5.7mil respectively on the back of the improved performance from Menara Sunway, Sunway Putra Tower and Wisma Sunway, with the commencement of new tenants’ tenancy and expansion from existing ones.

• Revenue and NPI for the services segment soared 152% YoY to RM14.5mil, backed by new income contribution from the Sunway University and College campus following the completion of the acquisition in April 2019.

• Debt-to-total assets ratio is steady at 38% and still below the regulatory threshold of 50%.

• We like SREIT for its strong brand name and market position in the shopping complex segment which has posted an average occupancy rate of more than 90% over the past 3 years. We expect the outlook for retail properties, especially shopping malls, to remain stable in the short to medium term. Maintain BUY.

Source: AmInvest Research - 6 Nov 2019