Results

4Q13 core PAT rose 15.3% yoy to RM55.5m, while YTD normalised PAT made up 100% of HLIB and consensus estimates.

Deviations

None.

DPU

4Q DPU was 2.02 sen, bringing YTD DPU to 8.3 sen, or 102% of our 8.16 sen FY13E DPU forecast.

Highlights

Mixed bag of results. 4Q rental income was relatively flat yoy and declined qoq, as rental income from the retail segment proved insufficient to offset the weaker performance of the hospitality and office segments.

Retail segment still going strong. This segment was somewhat affected by the closure of Sunway Putra Mall in end April 2013 for major refurbishment. However, Sunway Pyramid Shopping Mall continued to register solid performance with 3.9% yoy increase in gross revenue, mainly attributable to higher overall average rental rate (ARR) resulting from renewal/new tenancies, with an average rental reversion of 18.1%.

Weaker performance for hotel segment. Sunway Putra Hotel's performance was adversely affected in May and June 2013 by the major refurbishment works at the adjoining Sunway Putra Mall. Occupancy and average daily rate for the 2 months declined by 16% yoy and 6% yoy respectively.

Office segment still challenging. Gross revenue was flat in 4Q (+1.3% yoy), as the higher revenue from Menara Sunway was offset by lower revenue from Sunway Tower and Sunway Putra Tower resulting from lower average occupancy rate (83% and 78% respectively vs. 93.5% and 85.2% for FY12 respectively

Risks

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

Forecasts

Raised by 1% after rolling over our numbers.

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

Given the negative sentiments surround M-REITs, we raise our target DY from 5.5% to 6.5%, due to the performance drag from both its hotel and office assets, and reduce our TP from RM1.49 to RM1.33. HOLD.

Source:Hong Leong Investment Bank Research- 7 Aug 2013