Sunway REIT’s 4QFY14  results  met  expectations.  A  final  DPU  of  2.03 sen  was  declared.  Management  expects  its  retail  segment  to  record healthy  growth  in  FY15,  underpinned  by  the  anticipated  re-opening  of Sunway  Putra  Mall  in  3QFY15.  The  hospitality  and  office  segment outlook,  however,  remains  unexciting.  We  lift  our  DDM-based  FV  to MYR1.42, after rolling over our base period. Maintain NEUTRAL.

No  surprises.  Sunway  REIT’s  (SunREIT)  4QFY14  net  profit  of MYR56.1m  (-4.1%  q-o-q,  +1.1%  y-o-y)  brought  FY14  net  profit  to MYR232m,  up  6.0%  y-o-y.  Revenue  growth  remained  flat  as  the  REIT continued to be affected by the income loss from Sunway Putra Place’s (SPP)  ongoing  asset  enhancement  initiative  (AEI).  SunREIT’s 4QFY14 net  property  income  (NPI)  margin  declined  to  72.2%  (3QFY14:  74.6%) on  the  back  of  higher  property  expenses.  A final  DPU  of  2.03  sen  was declared, bringing total FY14 DPU to 8.36 sen, in line with our forecast. The REIT also recorded total valuation gain of MYR179.1m (after capex deductions) for its assets during the quarter.

Retail  segment  likely  to  remain  main  growth  driver.  Management remains  positive  on  its  retail  segment  outlook.  SPP’s AEI  is  now  in  its final  phases  and  is  on  track  to  reopen  in  3QFY15.  Initial  post-AEI occupancy for Sunway Putra Mall (SPM) is targeted at above 70%. Thus far,  it  has  signed  up  about  60%  of  the  tenants.  SPM  is  expected  to command  average  rental  of  about  MYR6-MYR7  psf  (net)  post-AEI. However, SPM’s contribution might be choppy during the initial weeks as tenants are exempted  from paying rent during the fit-out period. Overall retail  growth  may  be  further  enhanced  by  the  entrance  of  upscale grocery store Sam’s Groceria in Sunway Carnival Mall. The growth in the hospitality  and  office  segments,  however,  should  remain  unexciting  in FY15.

Earnings  forecasts.  We  trim  our  FY15  net  profit  forecast  by  1%  after updating our FY14 numbers. We also introduce our FY16 figures.

Maintain NEUTRAL. We nudge up our FV to MYR1.42 (from MYR1.39), after rolling over our DDM valuation base to FY15. We believe the REIT is fairly valued at current prices, as investors have  largely priced in the positives from SPP’s revamp. We reiterate that SunREIT’s potential re-rating catalyst ought to be the injection of yield-accretive assets.

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Company Profile

Sunway REIT is a large-cap diversified MREIT, with exposure to the retail, commercial, hospitality and healthcare segments.

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Source: RHB