Sunway REIT (SREIT) registered a weaker than expected 1QFY21 realised net profit of RM34.4m (-56.4% YoY, +56.9% QoQ) primarily due to lower rental income generated from both retail and hotel segment. The 1QFY21 net profit was below our and consensus estimates at only c.13% of our and consensus full year estimates. Group 1QFY21 revenue slumped 30.8% to RM107.4m as the pandemic restrictions adversely impacted the retail and hospitality industry. In addition, there was no income from Sunway Resort Hotel, due to the ongoing refurbishment works. The recovery progress was stymied by the spike of COVID 19 cases in recent weeks and as such, the recovery in footfall was not as good as expected earlier. Hence, we now expect retail and hotel segment to continue to struggle longer until pandemic vaccination is widely available. As such, we cut our FY21/22/23 by 34%/11%/4% after assuming lower retail and hotel revenue. Maintain Neutral call with RM1.65 TP.

• Retail assets’ revenue dropped 26.3% YoY. Group revenue from the retail segment was RM77.7m in 1Q2021 or a decrease of 26.3% YoY, mainly due to “rental support” to assist tenants affected by loss of business and challenging market conditions with the ongoing COVID-19 pandemic and RMCO. Correspondingly, Group net property income (NPI) was lower by 41.4% YoY, mainly due to lower revenue and additional allowance for doubtful debts.
• No respite from hotel segment too. Group’s hotels are still struggling to recover with the division gross revenue came in at a paltry RM2.8m for 1Q2021, a decrease of 88.2% YoY, mainly due to closure of Sunway Resort Hotel for phased refurbishment commencing July 2020 for 12-24 months, as well as the on-going travel restrictions pummeling the leisure market. NPI correspondingly recorded a reduction of 94.4% or RM20.8m compared to 1Q2020. Average occupancy was only 34% in 1QFY21, as compared to 80% recorded in 1QFY20.
• Office segment still steady with the segment recorded gross 1QFY21 revenue of RM10.5m, an increase of 3.4% YoY, mainly contributed by overall improved performance across office properties. The NPI recorded an increase of 10.1% or RM0.6m compared to 1Q2020 mainly due to adjustments in staff cost.

Source: PublicInvest Research - 24 Nov 2020