Results

2Q14 core PAT rose 10.5% yoy to RM62m, with YTD net profit of RM117.4m making up 51.9% and 51.3% of HLIB and consensus estimates respectively.

Deviations

None.

DPU

2.23 sen DPU was declared in 2Q14, bringing YTD DPU to 4.23 sen, or 52% of our 8.16 sen FY13E DPU forecast.

Highlights

Healthy set of results. Overall, the portfolio enjoyed 10.1% qoq growth in rental in 2Q14, with the main drivers being the retail segment (+6.6% qoq) and the hotel segment (+39.6% qoq). Unsurprisingly, the office segment continues to be in the doldrums and declined 1.6% qoq in 2Q14.

Retail segment up qoq but flat yoy. The retail segment was flat yoy (-0.9%) due to the closure of Sunway Putra Mall (SPM) in end April 2013 for major refurbishment, but was up 6.6% qoq thanks to strong growth seen in Sunway Pyramid Shopping Mall (+7.3% qoq), which greatly helped to mitigate the loss income from SPM. Sunway Pyramid currently has an occupancy rate of 97.5%.

Office segment stable. Whilst the office segment was flat qoq (-1.6%), rental revenue rose 5.4% yoy thanks to strong rental reversion from Sunway Tower in KL.

Positive 2Q surprise for the hotel segment, which was up 39.6% qoq with the key outperformer being Sunway Hotel Seberang Jaya (+45.9% qoq). However, we note that the hotel segment has displayed performance volatility historically due to fluctuation in occupancy rates. In particular, SREIT’s hotels in Bandar Sunway predominantly rely on the corporate market, which we opine will be affected by the soft macro conditions

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

Target DY maintained at 6.5%, due to the performance drag from its hotel assets. TP maintained at RM1.26.

Source: Hong Leong Investment Bank Research - 27 Jan 2014