15MFP21 realised net income (RNI) of RM154.3m came in above our expectation at 87% but below consensus at 66%. No dividends, as expected. We expect gradual earnings improvements in coming quarters, especially from the main driver namely retail segment with the recent reopening of the economy and upcoming holiday season. Increase FP21E RNI by 5% on less rental rebates, but FY22E RNI remains intact. Maintain MP and TP of RM1.35.

15MFPE21 realised net income (RNI) of RM154.3m came in slightly above our expectation at 87% but below consensus at 66% as we had expected 3QCY21 / 5QFPE21 to be weaker, and anticipate a much stronger 4QCY21 / 6QFPE21 on less rental rebates since the economy opened up in August 2021. No dividend, as expected. Note that FP21 consist of 6 quarters or 18 months as the Group is changing its FY-end to Dec (from June).

Results’ highlight. YoY, top-line was down by 0.5%, dragged down mainly by the retail segment (-16.5%) due to MCO restrictions within the Klang Valley, but supported by all other segments namely; (i) hotel (>100%) on guaranteed rent from Sunway Putra Hotel and quarantine business at Sunway Clio Hotel, (ii) office (+80%) from new income from The Pinnacle Sunway and stable occupancy, and (iii) services segment (+2.8%) from stable income contributions from Sunway Medical Centre and Sunway University and college campus. RNI jumped by 22.7% on lower operating cost (-7.6%) and lower financing cost (-16.7%) on lower interest rates. QoQ, top-line was up by 3.4% mainly on better contributions from the retail segment (+11%), while lower operating cost (- 11.4%) due to lower rebates during the period contributed to a better RNI which was up by 26.2%.

Outlook. The outlook for 4QCY21 is expected to be better in light of the reopening of the economy boosting shopper traffic and the holiday season which would promote spending and domestic travel allowing for better hotel occupancy rates. However, management does not discount the possibility of further rental rebates in coming months. The office and services segments are also expected to remain stable.

Increase FP21E RNI marginally by 5% to RM187m on lower-than- expected rental rebates while FY22E CNP of RM271m remains unchanged. We believe FY22E RNI should remain intact for now assuming the current trajectory of economic recovery maintains with gradually improving rental rates and reversions in FY22. FP21E/FY22E NDPU of 4.4-6.8 sen provides 3.2-4.6% net yield.

Maintain MARKET PERFORM and TP of RM1.35. Our TP is based on an unchanged FY22E GDPS/NDPS of 7.5 sen/6.8 sen on spread of +1.9ppt (at +0.5SD) on 10-year MGS target of 3.60%. Our applied spread is to account for the fluidity of near-term earnings weakness which still remains challenging for the hospitality segment while management does not discount the possibility of further rental holidays depending on the pandemic situation.

Risks to our call include: (i) bond yield compression and expansion, and (ii) stronger or weaker-than-expected earnings in retail, hospitality and office divisions.

Source: Kenanga Research - 10 Nov 2021