Sunway REIT’s 9MFY18 normalised net profit of RM214m (+7% YoY) was within both ours and consensus expectations. The improvement was primarily contributed by newly acquired properties: Sunway Clio Property & Sunway REIT Industrial – Shah Alam 1. The overall enhancement was slightly mitigated by higher finance costs as well as other trust expenses. We retain our forecast and maintain our HOLD call with unchanged TP of RM1.71 based on targeted yield of 5.8%.

Within Expectations. 9MFY18 gross revenue of RM424.2m (+8.7% YoY) translated into normalised net profit of RM214.2m (+6.9% YoY). The results were within both ours and consensus expectations, accounting for 76.0% and 74.0% of full year forecast respectively.

Dividend. Declared 3 rd interim dividend of 2.37 sen (3QFY17: 2.37 sen), going on ex on the 16 th May, bringing YTD dividend to 7.42 sen (9MFY17: 6.92 sen).

QoQ. Normalized net profit fell by 0.4% due to higher finance costs and other trust expenses. The higher finance costs were due to the higher principal loan drawndown to fund acquisitions, whereas the increase on other trust expenses was due to the professional fees incurred for the acquisition of Sunway Clio Property.

YoY. Revenue grew by 5.2% however net profit fell by 2.5%. While revenue improved due to the contributions of new assets and overall growth in all segments; the drop in net profit was caused by both higher finance costs and other trust expenses.

YTD. Normalized net profit for 9MFY18 increased by 6.9% mainly driven by proceeds from newly acquired Sunway Clio Property and Sunway REIT Industrial – Shah Alam 1. Overall, all segments contributed to positive revenue growths, these were slightly offset by the increase in finance costs and other trust expenses.

Retail. Higher 9MFY18 gross revenue from retail segment by 3.6% YoY was mainly contributed by the higher contribution from Sunway Pyramid Shopping Mall and the lower rental rebates given by Sunway Putra Mall. However, these were partially mitigated by lower rental reversion of SunCity Ipoh Hypermarket.

Hotel. 9MFY18 gross revenue recorded an improved 37.8% YoY which was primarily driven by higher contribution from Sunway Pyramid Hotel following the completion of its refurbishment and new contribution from Sunway Clio Property of RM2.2m. This was slightly offset by lower revenue proceeds from Sunway Resort Hotel & Spa and Sunway Putra Hotel due to lower demand from leisure segment.

Office. Registered a 4.0% YoY increment of 9MFY18 gross revenue. This was largely thanks to higher occupancy in Menara Sunway and Sunway Putra Tower with new tenants on board. However, this was partly offset by Wisma Sunway with its downsizing and non-renewal tenants.

Forecast. Maintain as the results were inline.

Maintain HOLD, TP: RM1.71. Maintain our HOLD call with unchanged TP of RM1.71 based on FY19 targeted yield of 5.8% which is derived from 2 years historical average yield spread of Sunway REIT and 10 year MGS.

Source: Hong Leong Investment Bank Research - 4 May 2018