KEY INVESTMENT HIGHLIGHTS

• Growing retail assets portfolio
• Better outlook for retail segment
• Hotel division benefited from higher tourist arrival
• Earnings forecast maintained
• Maintain BUY with a revised TP of RM1.90

Growing retail assets portfolio. We remain optimistic on the outlook for Sunway REIT which will be mainly driven by the growing contribution from retail assets from organic growth and asset acquisitions. Sunway REIT is actively expanding its portfolio particularly retail assets portfolio through assets acquisition. Sunway REIT completed the acquisition of six hypermarkets which made maiden earnings contribution in 1HFY24.

Besides, Sunway REIT is also acquiring 163 Retail Park in Mont' Kiara and Kluang Mall in Johor. We think that the acquisition of retail assets is timely considering the improving retail industry in Malaysia as consumers return to in-person shopping post pandemic.

Better outlook for retail segment. Retail division is the key earnings contributor to Sunway REIT with net property income (NPI) contribution of 62% in FY24. Meanwhile, retail division recorded +8.6%yoy growth in NPI in 1HFY24 mainly due to contribution from newly acquired hypermarkets which offset the slight drop in contribution from Sunway Pyramid Mall (-1.4%yoy) as the mall is undertaking reconfiguration of 11% of NLA which was previously occupied by AEON. The reconfiguration will be completed by end of FY24 and we understand that Sunway REIT has secured tenants for 90% of the space with encouraging positive rental reversion of close to double. Besides, Sunway Carnival Mall in Penang is undergoing refurbishment which will be completed by end of FY25. The refurbishment is expected to lift rental rate of Sunway Carnival Mall. Looking ahead, we expect decent growth from retail division from FY25 onwards due to higher contribution of Sunway Pyramid Mall and Sunway Carnival Mall.

Hotel division benefited from higher tourist arrival. Hotel division of Sunway REIT saw higher earnings contribution of 16% to total NPI in FY23 from 12% in FY22 following reopening of economy. Meanwhile, hotel division recorded higher NPI (+7.6%yoy) in 1HFY24 mainly due to higher average occupancy rate of hotels. Sunway Resort Hotel recorded strong growth in NPI as full room inventory available for the hotel since July 2023 post refurbishment exercise. Looking ahead, hotel division of Sunway REIT should perform better due to better outlook for tourism industry in Malaysia with Tourism Malaysia projecting 2024 tourist arrival to surpass the 2019 pre-pandemic level. Tourist arrival is expected to be higher particularly from India and China following the easing of visa restrictions.

Source: MIDF Research - 2 Oct 2024