Results

3Q14 core PAT rose 5.9% yoy to RM58.5m, with YTD net profit of RM175.9m making up 77.8% and 76.9% of HLIB and consensus estimates respectively.

Deviations

None.

DPU

1.18 sen DPU was declared in 3Q14, bringing YTD DPU to 5.41 sen, or 66% of our 8.16 sen FY13E DPU forecast.

Highlights

Flattish rental income growth. Rental income was up 1.3% yoy but down 2.0% qoq due to seasonal weakness for the hotel segment and lower occupancy of its offices.

Retail segment remains steady. The retail segment rose 3.6% qoq and 1.7% yoy, as strong rental reversions for both Sunway Pyramid and Sunway Carnival (+9.8% yoy and +12.5% yoy, respectively) helped to mitigate the loss of income from the closure of Sunway Putra Mall (SPM) in end April 2013 for major refurbishment. In 3Q, Sunway Pyramid saw 941k sft of retail space renewed/replaced with double digit rental reversion.

Office segment: mixed results. While Menara Sunway’s rental income rose 4.9% qoq, this was more than offset by weak occupancy and rental income for Sunway Tower and Sunway Putra Tower, leading to overall decline of 1.1% qoq.

Hotel segment continues to be choppy. Following a strong 2Q14 in which segment revenue jumped 39.6% qoq, 3Q14 was weak due to seasonal factors and posted a 25.0% qoq decline in rental income. The earnings for this segment have been historically volatile due to fluctuation in occupancy rates. In particular, Sunway Putra Hotel continues to be affected by the ongoing refurbishment for Sunway Putra Place (slated to complete in early 2015).

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%, while TP is maintained at RM1.26.

Source: Hong Leong Investment Bank Research - 30 Apr 2014