Results

• FY16 reported gross revenue of RM494.61m (+11.6% yoy), translated into normalised net profit of RM260.21m (+8.15% yoy), accounting for 100.9% and 99.4% of HLIB and consensus forecasts, respectively.

Deviations

• None.

Dividends

• Proposed 4th interim dividend of 2.12 sen (4Q15: 2.05 sen); full year DPU at 9.18 sen, representing a yield of 5.5%.

Highlights

• FY16 full year results saw strong performance from retail segment (+15.1% yoy), with full year contribution of Sunway Putra Mall (SPM) while tenant sales at Sunway Pyramid (SP) grew by 7%+ yoy, signifying improved consumption among consumers.

• Higher revenue (+18.7% yoy) from all hotels (except Hotel Seberang Jaya), offset by loss of income from the Pyramid Hotel East (PHE), which is under refurbishment and expected to be reopened 4QFY17.

• Lower revenue from office properties (-22.6% yoy) as the occupancy rate was lower except for Wisma Sunway (WS). Besides, the higher operating expense is attributable to the acquisition of WS back in Mac 2015. Management expects better performance from its office properties despite sluggish outlook.

• Qoq, retail segment and hotel segment was down due to relatively stronger quarter in 3Q as 4Q was affected by lower sales resulting from fasting month. However, improvement in office segment was seen with increased occupancy after having secured tenants for Sunway Tower (13% NLA) and Sunway Putra Tower. (9% NLA).

• Lower rental renewal is expected for upcoming major renewals in FY17 (57% & 51% of NLA for SP & CM) as they involve anchor tenants with capped reversion rate.

• For FY17, management guided a dip in DPU given the loss of income from PHE and cessation of payment of manager’s fee in units. Lower other income from one-off item involving court award of RM3.2m is likely to be recognized in FY17 compared to RM6.2m recognized in FY16.

Risks

• High reliant on a one single asset in Sunway Pyramid.

• Prolonged dampening of office market and consumer sentiment.

Forecasts

• We factor in the latest assumption metrics following management guidance on a dip in DPU for FY17. Our FY17 PAT forecast is reduced by 4%.

Rating

HOLD, TP: RM1.66

• Positives: Large acquisition pipeline; strong backing from Sponsor; well -diversi fied across various segments with low tenant concentration; and synergy with sponsor’s townships.

• Negatives: Heavily reliant on Bandar Sunway; persistent weakness in the office segment.

Valuation

• Maintain HOLD recommendation with lower TP of RM1.66 based on revised FY17 forecasted DPU of 9.1 sen.
• Targeted yield at 5.5% based on historical average yield spread of Sunway REIT and 10-year MGS.

Source: Hong Leong Investment Bank Research - 12 Aug 2016