Results

3Q13 normalised PAT rose 16.1% yoy to RM55.2m, making up 75.4% and 79.4% of HLIB and consensus estimates respectively.

Deviations

None.

DPU

2.06 sen DPU was declared in 3Q13, bringing YTD DPU to 6.28 sen, or 77.0% of our 8.16 sen FY13E DPU forecast.

Highlights

Stabilising rental income… Rental income was relatively flat qoq (+1.0% qoq), as rental income from the retail segment rose 3.9% yoy, which was sufficient to offset the 24.5% qoq decline in the hotel segment. Another contributing factor to the stabilisation of rental income was the maiden full quarter contribution from Sunway Medical Centre (SMC) of RM4.8m in 3Q, following the completion of its acquisition on 31 Dec 2012.

Retail segment still going strong…. Thanks to strong performance of Sunway Carnival Mall (SCSM), due to 16.1% yoy leap in rental income, mainly attributable to higher average rental rate and average occupancy rate (which improved from 90.1% in 9MFY12 to 96.5% in 9MFY13).

Office segment still challenging… In 3QFY13, the office segment recorded lower revenue and NPI contribution due to lower average occupancy rate from Sunway Tower and Sunway Putra Tower (down yoy by 12-ppt and 8.8-ppt respectively), due to non-renewal by tenants.

Lower gearing level… Following the completion of the RM320m placement in relation to the Sunway Medical Centre acquisition, net gearing has now declined from 0.38x in 2Q13 to a more comfortable 0.32x in 3Q13.

Risks

Highly reliant on Sunway Pyramid; intensifying competition for assets and tenants.

Forecasts

Maintained.

Rating

HOLD

• Positives: Has the largest acquisition pipeline amongst M-REITs; strong backing from Sponsor; welldiversified across various segments with low tenant concentration; synergy with Sponsor’s townships.
• Negatives: Still heavily reliant on Bandar Sunway, which will take time to change; persistent weakness in the office segment due to oversupply of new office space; choppy performance in the hotel segment.

Valuation

Sunway REIT currently trades at 5.1% yield, which represents the lower boundary DY in our view. Our TP is maintained at RM1.49 (5.5% target DY). HOLD.

Source: Hong Leong Investment Bank Research - 02 May 2013