Results

• In line. 1HFY18 gross revenue of RM282.6m (+10.5% YoY), translated into normalized net profit of RM147.4m (+13.1% YoY), accounting for 50.2% and 52.7% of HLIB and consensus forecasts, respectively.

Deviations

• None

Dividends

• Proposed 2 nd interim dividend of 2.38 sen (2QFY17: 2.28 sen), going on ex on the 20 th Feb, bringing YTD dividend to 5.05 sen (1HFY17: 4.55 sen).

Highlights

• QoQ : Normalized net profit fell by 10.0% due to allowances for doubtful debts and higher maintenance expenses from retail and office segments.

• YoY: Revenue and net profit grew by 11.5% and 8.2%, respectively mainly due to overall strong performances from all segments.

• YTD : Normalized net profit for 1HFY18 increased by 13.1% due to improvements in all segments except for the office segment.

• Retail: Higher net property income (NPI) from retail (+0.2%) was driven mainly by Sunway Pyramid Mall due to positive rental reversion. This was partially offset by the higher maintenance expenses occurred during the quarter.

• Hotel: Higher NPI from hotel (+57.3%) was driven by the reopening of Sunway Pyramid Hotel following its completion of refurbishment. The strong performance was also attributable to better contribution from Sunway Resort Hotel & Spa and Sunway Putra Hotel due to stronger demand from the corporate segment and benefited from the SEA Games and ASEAN PARA Games

• Outlook : For FY18, a moderate growth in DPU is expected due to (i) resumption in income contribution from Sunway Pyramid Hotel following the completion of refurbishment; (ii) moderate growth in retail segment; (iii) income contributions from newly acquired assets; and (iv) gradual improvement in occupancy of the office segment due to low base effect.

Risks

• Prolonged dampening of office market and consumer sentiments.

Forecasts

• Unchanged.

Rating

HOLD ↔ , TP: RM1.80 ↔

• We like SREIT for its well-diversified portfolio in which the prominent assets are located at its unique township planning with large acquisition pipeline and strong backing from sponsor. However, we expect limited inorganic growth potential for the REIT in short term due to the limitation of gearing ratio.

Valuation

• Maintain HOLD recommendation with unchanged TP of RM1.80 based on FY19 forecasted DPU of 10.4 sen.
• Targeted yield at 5.8% based on historical average yield spread of SREIT relative to 10-year MGS.

Source: Hong Leong Investment Bank Research - 7 Feb 2018