Results

• 9MFY15 gross revenue of RM338.5m (+6.3% yoy) was translated into normalised net profit of RM183.5m (+4.3% yoy), accounting for 73.9% and 74.3% of HLIB and consensus FY forecasts, respectively.

Deviations

• Largely in-line

Dividends

• As expected, third interim dividend of 2.13 sen (1.79 sen taxable and 0.34 sen non-taxable) was declared during third quarter with ex-date on 14th May 2015.

• YTD dividend amounted to 6.68 sen per unit (FY14: 6.33 sen) accounting for 75.0% of our full year DPU assumptions.

Highlights

• Retail segment - the largest contributor to SREIT revenue (Figure #7) continues to deliver solid performance with 11.1% yoy growth for 9MFY15. This is mainly contributed by Sunway Pyramid and Sunway Carnival, on the back of higher rental reversion, service charge and also improved occupancy level (Figure #5).

• YTD contribution from hotel segment has come down by 5.3% following decrease in overall occupancy rate (save for Sunway Hotel Tower and Sunway Hotel Seberang Jaya), mainly due to softer business and consumer sentiment and also closure of F&B outlets. Sunway Hotel Georgetown made its maiden contribution with revenue and NPI of RM0.6m and RM0.5m respectively during the third quarter.

• Similarly, office segment also deliver sluggish performance (revenue down by 9.3% yoy) driven by lower occupancy rate across all office buildings, except for newly acquired Wisma Sunway. We reiterate our concern on hotel vacancy across all office buildings given the oversupply of office space, coupled with weak business sentiment.

• Management also shared that Sunway Putra Place is on track for completion by 4Q15.

Risks

• Highly reliant on Sunway Pyramid
• Intensifying competition for assets and tenants.

Forecasts

• Unchanged.

Rating

HOLD , TP: RM1.60

Positives

• Has the largest acquisition pipeline amongst MREITs; strong backing from Sponsor; well-diversified across various segments with low tenant concentration; and 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.

Valuation

Maintain HOLD recommendation on the equity and unchanged TP of RM1.60.

• Targeted yield at 6.2% based on historical average yield spread of Sunway REIT and 7-year MGS.

Source: Hong Leong Investment Bank Research - 30 Apr 2015