Stock Name: SUNREIT
Company Name: SUNWAY REAL ESTATE INVT TRUST
Research House: RHB

Sunway REIT
(Sept 23, 96.5 sen)
Initiating coverage with outperform call and fair value of RM1.05: Sunway REIT made its debut on July 7. It is the largest REIT in Malaysia by market capital, asset size, and total outstanding units. It has eight strategic commercial assets in its portfolio, which include three retail properties ' Sunway Pyramid Shopping Mall in Bandar Sunway, Sunway Carnival Shopping Mall in Penang and SunCity Ipoh Hypermarket in Ipoh; three hotel properties ' Sunway Resort Hotel & Spa and Pyramid Tower Hotel in Bandar Sunway, and Sunway Hotel Seberang Jaya in Penang; and two office towers ' Menara Sunway in Bandar Sunway and Sunway Tower in Kuala Lumpur. Total asset size is estimated at RM3.7 billion.

Investment case: (ii) High investibility due to its large market value and free float; (ii) A portfolio of quality retail and commercial assets that provide sustainable and steady earnings growth; (iii) Growing young demographics to support private consumption and retail spending growth; and (iv) A pool of assets available from Sponsor for future expansion in asset size.

The risks include: (i) Sharp increase in interest rates that will significantly affect borrowing costs; (ii) Subdued office market in Klang Valley; (iii) Outbreak of influenza which would affect tourist arrivals; and (iv) Country risks.

Our earnings per unit (EPU) forecasts are decent, estimated at 10% growth for FY11, on the back of slightly higher rental rates for Sunway Pyramid Shopping Mall, as well as higher occupancy rate for Sunway Resort Hotel & Spa and Pyramid Tower Hotel, supported by a better macroeconomic environment, hence, private consumption. Note that we have not factored in any potential acquisition of properties in our earnings projections and balance sheet forecasts.

We assume 100% payout for Sunway REIT over the next three years. As such, our dividend per unit (DPU) forecasts translate to a gross yield of 7% and 7.6% for FY11 and FY12. In line with our valuations for other REITs under our coverage (Axis REIT and Quill Capita), and based on our target MREIT yield of 7% against our FY2012 DPU forecast of 7.3 sen, our indicative fair value for Sunway REIT is RM1.05. We initiate coverage on Sunway REIT with an 'outperform' rating. ' RHB Research Institute, Sept 23.


This article appeared in The Edge Financial Daily, September 24, 2010.