SUNREIT’s 1HFY24 results met expectations. Its core net profit grew by a marginal 1% YoY as new income streams were largely offset by earnings gap arising from the disposal of Sunway Medical Centre. 2Q rental reversion for Sunway Carnival Mall was impressive coming in at above 10%. We keep our forecasts, TP of RM1.69 and maintain our MARKET PERFORM call.

Within expectations. SUNREIT’s 1HFY24 core net profit came in at RM160m, making up 45% of both our full-year forecast and the full-year consensus estimate with a stronger 2H period ahead. The group also declares a net income distribution of 4.25 sen which is on track to meet our full-year net dividend forecast of 8.8 sen.

YoY, its 1HFY24 revenue recorded only a marginal 1% growth. Property income contribution from newly acquired hypermarkets (which was completed in April 2024) and much stronger performance from Sunway Carnival Mall were largely offset by the absence of contribution from the disposal of Sunway Medical Centre. We note that Sunway Pyramid Mall was flattish due to its ongoing reconfiguration from ex-anchor tenant space. Coupled with higher borrowing expenses, net profits were also relatively stagnant.

QoQ, its revenue was lower by 2% due to a seasonally weaker 2Q period due to higher festive spendings in 1Q, while core net profit fell by 5% mainly attributable to the higher borrowing cost mentioned above.

We are Positive on the Outlook. We gathered that Sunway Pyramid has filled up most of the spaces from the exit of Aeon which appears to be on track to be completed by end-FY24. Being the landlord of multiple retail and hospitality assets in prime location, SUNREIT is expected to see a boost in performance from the boom in tourism. While we are positive on SUNREIT’s outlook, we will continue to closely monitor the retail sector given the sustained elevated inflation that eats into consumer spending power, and anxiety ahead of the implementation of the fuel subsidy rationalisation.

Forecasts. Maintained

Valuations. We keep our forecasts, TP of RM1.69 and maintain MARKET PERFORM call. The basis of our TP remains unchanged at a target yield of 5.5% (derived from a 1.5% yield spread above our 10-year MGS assumption of 4.0%), The relatively lower yield spread against what we applied to its peers is to reflect SUNWAY’s diversified asset portfolio in key urban regions. We reckon that the group’s brand equity also benefits greatly from its affiliation to the Sunway conglomerate. There is no adjustment to our TP based on ESG of given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) higher/lower-than expected bond yield and (ii) higher/lower-than-expected occupancy rates.

Source: Kenanga Research - 16 Aug 2024