Sunway REIT’s (SREIT) 4QFY21 (18-month: FY21) realised net profit remained weak at RM33.5m which was below our and consensus estimates. YTD, Group realised net profit of RM133.2m only constituted c.55% of our and consensus estimates for FY21. Operating performance was again weighed down by lower realised revenue and realized net operating income (NPI) contributions from the Retail and Hotel segments, though partially mitigated by higher contributions from the Office and Services segments. With the current elevated cases and lockdown restrictions, we expect weaker performance in the near term and as such reduce our FY21 earnings estimates by 14%. Maintain Neutral call and TP of RM1.55.

• Retail business still challenging. Realised gross revenue for the retail segment increased by 8.3% YoY to RM58.6m in 4QFY21 due to improved tenants’ sales and lower rental support granted to affected tenants. However, NPI eased to RM25.5m (-21% YoY) due to higher operating expenses. The recovery momentum seen in 1QFY21 was disrupted by the re-introduction of conditional movement control order (CMCO) and movement control order (MCO), resulting in YTD contraction of 32.3% for the retail segment mainly due to the ongoing rental support programme provided on a case-to-case basis to affected tenants, lower turnover rent, promotion and car park income. Correspondingly, realised NPI for the retail segment eased in tandem to RM127.5m (-49% YoY).

• YTD hotel revenue slumped 51% YoY to RM33.8m, mainly due to restrictions on interstate, district and inbound travel, group and corporate events amidst a surge in COVID-19 cases and various stages of movement control orders nationwide, particularly in KL, Selangor and Penang, as well as closure of Sunway Resort Hotel for phased refurbishment for between 12 and 24 months from July 2020. As such, NPI for hotel segment also reduced by 56% YoY to RM27.6m.

• Office contribution higher due to new asset. Group office segment registered YTD 4QFY21 gross revenue of RM63.6m (+53% YoY) after the addition of the new income of RM22.2m from The Pinnacle Sunway which was acquired on 20 November 2020. NPI correspondingly recorded an increase of 73% to RM41.5m.

Source: PublicInvest Research - 1 Sept 2021