Sunway REIT’s (SREIT) 1QFY24 realised net profit was down 10.4% YoY to RM82m, which came in within our and consensus full-year estimates. Year-todate (YTD), the reported profits constitute about 25% and 23% of our and consensus full year estimates. Weaker Group realised net profit was mainly due to lower contribution from the Services segment after the disposal of Sunway Medical Centre (Tower A & B) in 3QFY23, though mitigated by the improved performance from the Hotel, Office and Industrial & Others segments. During the quarter, SREIT registered net property income (NPI) of RM130.5m and revenue of RM178.6m driven by performance across its core segments of retail, hospitality and office. Separately, it completed the acquisition of six hypermarkets (purchase consideration of RM520m) which will improve its earnings in the upcoming quarters. As such, we tweak our FY24-26 profit forecasts upwards by 6%-17% to account for these new assets. Given the limited share price upside, we maintain our Neutral call with TP unchanged at RM1.55.

• Retail revenue flattish in 1QFY24 at RM126.3m despite the temporary disruptions from ongoing refurbishments of the two major malls, Sunway Pyramid Mall and Sunway Carnival Mall. Correspondingly, retail NPI tapered off by 3% YoY to RM86.9m, mainly dragged by higher marketing costs for the festive season in the current quarter. Nonetheless, we believe that the retail segment will be be boosted by the completion of the acquisition of six hypermarkets (RM520m with expected 8% yield) on 30 April 2024.

• Hotel segment’s revenue rose 3% YoY to RM19.1m in 1QFY24, supported by an improved average occupancy rate of 60% (from 59% in 1QFY23) Correspondingly, NPI grew 3% to RM18.1m. We understand that the better performance was fueled by an overall improvement in domestic and leisure tourist arrivals in conjunction with the festive seasons and school holidays, a steady recovery in international business supported by improved flight connectivity, alongside a sustained demand for Meetings, Incentives, Conferences, and Exhibitions (MICE) activities.

• Office segment’s revenue rose 4% YoY to RM21.3m in 1QFY24, underpinned by a stable average occupancy rate of more than 80%. Office NPI increased by 3% to RM13.9m in tandem with the growth in revenue during the quarter. However, it was partially affected by higher service charges for Wisma Sunway which took effect from 1 October 2023

Source: PublicInvest Research - 17 May 2024