A Firm Start to the Year

Sunway REIT (SREIT) reported a solid set of results – 1QFY20 realised net profit grew by 1.0% yoy on the maiden contribution from Sunway Campus and higher contribution from its Sunway Resort Hotel and Spa, which more than offset weaker earnings from Sunway Clio. Overall, the results were within market and our expectations. Reiterate BUY with an unchanged target price of RM2.00. We continue to like SREIT for its 5.4% FY20E yield and diversified asset portfolio.

A Firm Start With 1QFY20 Realised Net Profit of RM73.7m, +1.0% Yoy

SREIT started its new financial year with a solid set of numbers - realised net profit grew by 1% yoy to RM73.7m. The results were supported by the maiden contribution from Sunway University & College Campus (RM8.6m) and higher post-refurbishment contributions from Sunway Resort Hotel and Spa (RM7.1m +76.4% yoy) that more than offset weaker earnings from Sunway Clio. SREIT announced a quarterly distribution of 2.50 sen per unit, +0.8% yoy. Overall, the results were within market and our expectations. SREIT’s 1QFY20 realised net profit made up 23% of the street’s and 25% of our full-year earnings estimates.

Earnings Sequentially Higher

SREIT’s 1QFY20 revenue grew by 6.7% qoq to RM155.4m on higher contributions from the hotel (+57.4% to RM23.7m), office (+0.9% to RM10.1m) and industrial segments (+9.0% to RM16.1m). The retail segment, however, registered a marginal decline of 0.2% to RM105.5m due to lower occupancy in Sunway Pyramid (attributable to the fit-out period for new tenants). The higher 1QFY20 revenue translated to a 9.8% qoq growth in realized net profit and similarly, DPU (2.50 sen in 1QFY20 from 2.28 sen in 4QFY19).

Stable Outlook for Retail, Cautious on Hotels

Looking into FY20, management expects modest growth from the retail segment driven by a higher contribution from Sunway Pyramid and marginal improvement in the office segment attributable to higher occupancy, but are cautious on the hotel segment. Notwithstanding a weak office market, management expects its effective leasing strategies to improve the office’s segmental performance.

Maintain BUY With An Unchanged TP of RM2.00

We reiterate our BUY rating with an unchanged TP of RM2.00. We favour its diversified asset portfolio, defensive revenue stream, proactive management and strong injection pipeline from its parent company, Sunway Berhad. At 5.4% FY20E yield, valuation remains attractive. Key risks: weaker-thanexpected earnings and/or an unexpected OPR hike

Source: Affin Hwang Research - 6 Nov 2019