1HFY22 net profit of RM153m (up 153% YoY) is broadly in-line with our/consensus expectations. Post results, we have tweaked our forward earnings by +4.4% for FY22 and -0.6% for FY23. Still a MARKET PERFORM with a revised higher TP of RM1.60 based on a target yield of 5.5% (which implies a 1.0% yield spread above our 10-year MGS assumption of 4.5%).

Results’ highlights. YoY, 1HFY22 revenue was up 44% while core net profit jumped 153% (accounting for 52%/50% of our/consensus full-year estimates). 1HFY22 DPU of 4.22 sen is marginally ahead of our FY22F DPU of 8.1 sen. During the first half, net property income (NPI) rose 75% as its business (particularly the retail operations) benefitted from increased footfall and tenant sales following the gradual return to normalcy post the reopening of the economy. By sector, the retail segment (lifted by marginal rental support, higher turnover rent, promotion and car park income) contributed the most to NPI (up 187% YoY to RM141.9m or 63% of overall NPI) which was followed by the hotel operations (+14% YoY to RM22.5m or 10% of total NPI). In terms of individual assets, Sunway Pyramid Mall (+227% YoY to RM122.0m or 54% of NPI) remained the top contributor to the overall performance.

Outlook. With tenant sales and footfall (which have recovered slightly above the pre-Covid thresholds) holding up so far (as has been the case in 4QFY21, 1QFY22 and 2QFY22), the business momentum will probably sustain going into the second half. This is especially so for the retail and hotel operations in view of the steady pattern of consumer spending and travelling activity (with foreign tourists yet to return to pre-pandemic level), notwithstanding possible disruptions arising from a rising inflationary environment as well as recession fears.

Adjusting our forecasts. Following the 1HFY22 results, we have revised our core net profit forecasts to RM306m (+4.4%) for FY22 and RM318m (- 0.6%) for FY23 after tweaking our assumptions. Correspondingly, our FY22F and FY23F GDPU now stand at 8.5 sen (from 8.1 sen) and 8.8 sen (from 8.9 sen), respectively, which imply yields of 5.6%-5.8%.

Still MARKET PERFORM. We have revised our TP to RM1.60 (from RM1.50) based on a target yield of 5.5% (which is derived from a 1.0% yield spread above our 10-year MGS assumption of 4.5%) on FY23F GDPU. This is to reflect SUNREIT’s diversified portfolio (with quality assets spread across the retail, hotel, office and services industries). There is no adjustment to our TP based on ESG of which it is given a 3- star rating as appraised by us.

Risks to our call include: (i) bond yield contraction/expansion, (ii) higher/lower-than-expected rental reversions, and (iii) higher/lower-than-expected occupancy rates.

Source: Kenanga Research - 19 Aug 2022