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% over CY20F distributable income. We keep our FY20F–22F numbers unchanged at RM308.8mil, RM326.7mil and RM340.2mil respectively.

• SREIT’s 1HFY20 distributable income of RM146.3mil came in within expectation at 48% of ours and consensus’ full-year estimates. 1HFY20 revenue grew by 10.1% YoY to RM311.2mil mainly attributable to the contribution from the newly acquired Sunway University & College campus and stronger performance across all segments, particularly hotels.

• Net property income (NPI) rose by 9.8% to RM235.7mil, in line with revenue growth. However, distributable income grew at a slower rate 4.5% to RM146.3mil mainly due to distribution to perpetual holders amounting to RM10mil. SREIT recommended a DPU of 2.45 sen compared to YoY’s 2.25 sen.

• The retail segment reported a 1HFY20 revenue of RM212.3mil (+0.9% YoY) supported by Sunway Pyramid, Sunway Carnival and Sunway Putra Mall. However, the segment’s NPI fell by 2.8% YoY to RM149.3mil due higher property operating expenses (+11.3%). Occupancy rates at Sunway Pyramid, Carnival and Putra Mall remained stable at 97.2%, 96.7% and 91.1% respectively (vs. 99.0%, 98.2% and 91.0% YoY).

• The hotel sector’s 1HFY20 revenue and NPI climbed by 15.0% and 18.0% to RM46.2mil and RM43.1mil respectively, mainly due to higher income in Sunway Resort Hotel & Spa, Sunway Pyramid Hotel and Sunway Clio Property. The average occupancy rate for the segment is also higher at 77% vs. YoY’s 71.0%.

• The office sector’s revenue and NPI expanded by 11.1% and 8.5% to RM20.5mil and RM11.1mil respectively on the back of the improved performance from all office properties, with the commencement of new tenants, renewal at higher rates and expansion from existing ones.

• Revenue and NPI for the services segment surged 153% YoY to RM29.1mil, backed by new income contribution from the Sunway University and College campus and Sunway Medical Centre.

• 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. Maintain BUY.

Source: AmInvest Research - 14 Feb 2020