Sunway REIT (SREIT) registered 3QFY20 realised net profit of RM60.7m (- 12.0% YoY, +116.6% QoQ) which was within our estimates but below consensus. For cumulative 9MFY20, the Group realized a net profit of RM206.5m (-4.0% YoY) which constituted 79% and 72% of our and consensus full year estimates. Gross revenue for 3QFY20 decreased by 7.1% or RM10.7m YoY, mainly attributable to lower performance from the retail and hotel segments resulting from the COVID-19 impact, though partially offset by contribution from the newly-acquired Sunway University & College campus. We deem the numbers as in line as we expect the Group’s 4Q net profit to be weaker due to Movement Control Order (MCO) closures during the quarter which affected its main revenue drivers (retail and hospitality assets). Earnings estimates are kept unchanged. The Group also changed its income distribution payment frequency from quarterly to semi-annually in order to have better capital management in view of the current difficult trading environment. Maintain Neutral call and RM1.70 TP.

• Retail assets’ revenue down 11% YoY. Revenue from retail assets dropped 11.2% to RM98.3m mainly due to RM13.8m in rental support granted to non-essential retail tenants during the MCO period which commenced on 18 March 2020. Net property income (NPI) correspondingly recorded a reduction of 15.6% or RM12.4m compared to 3Q2019.

• Hotel’s NPI dropped 37% YoY. Hotel segment also recorded weaker gross revenue of RM15.3m for 3QFY20, a decrease of 34.6% YoY with pandemic fears affected global travelling patterns as well as the MCO period effected by government. NPI correspondingly recorded a reduction of 37.0% or RM7.9m compared to 3QFY19.

• Other segments are steady with the office segment recording gross revenue of RM10.7m for 3QFY20, an increase of 8.1% or RM0.8m compared to 3QFY19, mainly contributed by overall improved performance from all office properties while the services segment contributed revenue and NPI of RM14.9m for 3QFY20, an increase of RM9.0m compared to 3QFY19, mainly due to full income contribution of Sunway University & College campus for the quarter of RM8.7m, as well as contribution from Sunway Medical Centre.

Source: PublicInvest Research - 20 May 2020