INVESTMENT HIGHLIGHTS

• 1HFY18 earnings in-line

• CNI for the period rose 12.3% to RM149.7m

• 2QFY18 CNI was up by 6.7%yoy to RM71.0m

• Maintain BUY with unchanged TP of RM1.91

1HFY18 earnings in-line. Sunway REIT (SUNREIT)’s core net income (CNI) of RM150.2m made up 52.7% of our FY18 forecast and 53.8% of consensus’. A DPU of 2.38 sen was announced, bringing YTD DPU to 5.05 sen.

CNI for the period rose 12.3% to RM149.7m supported by revenue growth of 11% to RM282.6m. Retail segment Net Property Income (NPI) grew 4.8% to RM149.2m due to positive rental reversion while hotel segment jumped 50.2% to RM44.0m due to higher occupancy rate at Sunway Putra Hotel and the full opening of Sunway Pyramid Hotel. Meanwhile, the office segment is flat at RM7.7m and the addition of the Shah Alam industrial asset boosted the other segment by 25% to RM13.5m.

2QFY18 CNI was up by 6.7%yoy to RM71.0m on the back of revenue that grew 11%yoy to RM141.5m. CNI for the quarter didn’t catch up as fast as revenue due to higher operating expenses which was partly due to the repainting of carparks at its retail mall. NPI for malls are up marginally by 0.1% to RM70.9m yoy due to growth in Sunway Pyramid, which was mitigated by NPI contraction of Sunway Carnival, Sunway Putra Mall and Sunway City Ipoh Hypermarket. Hotel segment NPI soared 57.6% to RM21.9m due to higher event revenue and lower contribution from Sunway Pyramid Hotel last year.

On track for a decent year. We expect Sunway Pyramid and Sunway Carnival to support the NPI growth for the retail segment. We foresee a slight dip from Sunway Putra Mall due to a slight negative rental reversion to uphold its occupancy rate. Sunway Carnival’s NPI is expected to improve in 2HFY18 following the change in manager for its convention centre, which led to a 1.5 months of vacancy previously. We expect the office segment to remain flat while downside risk is limited. In the second half of the year, we also anticipate greater contribution from Sunway Clio as management targets to complete the acquisition in 3QFY18.

Source: MIDF Research - 7 Feb 2018