INVESTMENT HIGHLIGHTS

• 9MFY19 earnings met expectation

• CNI for the period dipped 1% to RM215.3m

• 3QFY19 CNI increased by7.8%yoy to RM75.8m

• Maintain BUY with an unchanged TP of RM2.02

9MFY19 earnings met expectation making up 74% of ours and consensus’ full year estimates. A DPU of 2.58 sen was announced, bringing ytd DPU to 7.3 sen. This is also in-line with our expectation.

CNI for the period dipped 1%yoy to RM215.3m as revenue climbed 2.5%yoy to RM434.7m. Meanwhile, net property income (NPI) rose 2.8% to RM328.5m. The higher NPI can be attributed to growth in all the segments: retail (+3% to RM233.2m), office (+29% to RM15.5m) and services (+4% to RM17.5m) as well as industrial and others (+16% to RM4.3,). This is offset by the hotel segment NPI that decreased by 5% to RM57.9m. Core net income for the cumulative period was lower on-year mainly due to higher finance costs (+14.5%) and operating expenses (+1.7%). Higher average cost of debt, loan amount and oneoff fees to fund the education asset had led to the increase in finance expenses. On top of that, other income for the period fell from RM1.97m to RM0.1m due to lower fair value gain on the interest rate swap contracts. Among the properties, Sunway Pyramid NPI rose 6.9%yoy to RM192.7m while Sunway Resort and Spa saw a decline of 50.8%yoy to RM14.7m. Sunway Clio property contributed an additional RM16.3m to its ytd NPI compared to RM1.9m in the year prior.

3QFY19 CNI increased by 7.8%yoy to RM75.8m as revenue rose 7.1%yoy to RM151.5m. We have excluded the RM6.9m deferred tax expense from the CNI. NPI increased 8.0%yoy to RM113.8m driven by all segments: retail (+3% to RM79.5m), hotel (+29% to RM21.5m), office (+18% to RM5.3m), services (+4% to RM6.0m) and industrial (+10% to RM1.5m). The higher performance for the retail segment can be attributed to higher turnover rent at Sunway Pyramid, which is partially offset by lower contribution from Sunway Putra mall. Meanwhile, the higher NPI for the hotel segment is largely due to the inclusion of the Sunway Clio property while the other hotels registered softer NPI. Finance costs for the quarter Sequentially, NPI is up by 9.2%qoq due to revenue that increased by 8.6%qoq.

Maintain BUY with an unchanged TP of RM2.02. We make no changes to our earnings estimates as the latest quarterly results are within expectation. Our Dividend Discount Model-based valuation (required rate of return of 7.4%; terminal growth rate of 2.0%) is maintained. We continue to like SUNREIT for its integrated asset cluster in a mature township and stable prospects from its crown jewel Sunway Pyramid Mall. Dividend yield is estimated at 4.8%.

Source: MIDF Research - 3 May 2019