Results

• FY15 gross revenue of RM453.5m (+6.0% yoy) was translated into normalised net profit of RM240.6m (+3.7% yoy), accounting for 96.9% and 97.3% of HLIB and consensus FY forecasts, respectively.

Deviations

• Largely in-line.

Dividends

• Fourth interim dividend of 2.05 sen (0.96 sen taxable and 1.09 sen non-taxable) was declared during fourth quarter with ex-date on 24th Aug 2015.

• YTD dividend amounted to 8.73 sen per unit (FY14: 8.36 sen) accounting for 98.1% of our full year DPU assumptions.

Highlights

• Retail segment…
• Continues to deliver solid performance largely driven by higher rental rates as well as higher service and promotional charges by its crown jewel – Sunway Pyramid (+7.8% yoy) and also Sunway Carnival (11.5%). Occupancy rate for bot h the malls also improved yoy. This has largely mitigated poor performance of its office and hotel segment.
• Sunway Putra Mall has contributed positively to the earnings (+405.5% yoy) since its soft launch in May. Secured occupancy stood at 82.4% and we not e that tenants are given one-month rent free period.
• Hotel segment…
• Poor performance was due to overall weak demand arising from uncertainties in domestic and global front. Also, it was a result of spill over from fasting month which started in 2nd week of June.
• Major refurbishment at Sunway Putra Hotel is expected to be completed by 2QFY16.
• Office segment…
• Bleeding continues as some tenants did not renew leases after their expiries.
• We reiterate our concern on office segment as SREIT may need to experience negative rental reversion in order to keep occupancy rate high.

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 - 12 Aug 2015