Weak Despite Injection of The Pinnacle Sunway

• Sunway REIT (SREIT)’s 2QFY21 realised net profit fell by 3.1% qoq to RM28.5m on weaker revenue contribution from Sunway Pyramid and Sunway Putra Mall
• 6MFY21 results were below expectations – making up 19% and 18% of street and our 18-month earnings expectations respectively
• In view of the weaker-than-expected retail earnings, we cut our 18MFY21E expectations by 10.1%. Maintain HOLD with a lower target price of RM1.49

2QFY21 Realised Net Profit Decreased by 3.1% Qoq to RM28.5m

SREIT’s 2QFY21 realised net profit fell by 3.1% qoq to RM28.5m, mainly due to a weaker-than-expected retail contribution as Sunway Pyramid and Sunway Putra Mall recorded 36% and 11% declines in revenue qoq, attributable to the 2-month long CMCO. The decline was, however, cushioned by the maiden contribution from The Pinnacle Sunway and guaranteed income accrued for Sunway Clio Property recognized in 2QFY21. Elsewhere, other asset segments remained stable. Notably, operating expense was 24.4% lower qoq from lower property management fees and reimbursements, utilities and marketing expenses. Tracking the lower earnings, SREIT declared a 0.77sen DPU (-14.4% qoq) bringing the cumulative 6MFY21 DPU to 1.67 sen (-66.3% yoy).

6MFY21 Realised Net Profit Fell by 60.4% Yoy to RM57.8m

Compared to 6MFY20, the pre-Covid-19 period, SREIT’s 6MFY21 realised net profit fell by 60.4% yoy due to a dip in retail (-36.6% yoy) as rental support for affected tenants continued and carpark income fell amidst the RMCO and CMCO period, while hotel revenue fell -76.8% yoy due to lower occupancy. This more than offset a 22% increase in office revenue from the maiden contribution from The Pinnacle Sunway, injected in November 2020. In tandem, NPI margin also fell 9.8ppt to 66% despite an 8.4% lower opex due to lower utilities and marketing expenses. Overall, the results were below market and our expectations – 6MFY21 realised net profit came in at 19% of street and 18% of our prior 18-month earnings forecasts (due to the change in financial year-end from June to December). The variation to our forecast was largely due to weaker-than-expected retail earnings.

Maintain HOLD With a Lower TP of RM1.49

We lowered our 18MFY21E earnings by 10.1% to incorporate the weaker-than-expected retail earnings while maintaining our FY22-23E forecasts at this juncture. Nonetheless, we still expect some earnings recovery in 2HCY21, driven by an expected recovery in the retail and hotel segment following the phased distribution of Covid-19 vaccines, which should lead to more lenient SOP. All in, we maintain HOLD on SREIT with a lower DDMderived price target of RM1.49 (from RM1.50).

Source: Affin Hwang Research - 10 Feb 2021