Sunway  REIT’s  2QFY15  (Jun)  results  met  expectations.  Maintain NEUTRAL  and  MYR1.55  TP  (1.9%  downside).  Management  is  cautious on  the  outlook  for  the  retail  segment,  although  Sunway  Putra  Mall  is still on track to reopen in 4QFY15.  The hospitality segment could see a boost from the completion of the Sunway Hotel Georgetown acquisitionyesterday. Outlook for the office segment may continue to look bleak.

In  line.  Sunway  REIT’s  (SunREIT)  2QFY15  core  profit  of  MYR63.0m(+1.6%  YoY,  -0.7%  QoQ)  brought  1HFY15  core  profit  to  MYR126.4m (+7.7% YoY). This came in line at  51%/50% of our  and consensus fullyear  estimates.  The  steady  growth  in  core  profit  was  attributable  to increased rental contributions from its retail and hospitality segments due to  the  kick-in  of  positive  rental  reversions  and  higher  occupancy  post refurbishments. A DPU of 2.27 sen was announced this quarter.

Briefing  highlights.  SunREIT’s  management  shares  the  view  of  its peers and expects the retail sector growth to be moderate this year. That said,  we  still  expect  the  retail  segment  to  drive  SunREIT’s  earnings growth.  Occupancy  for  its  retail  assets  remains  healthy  at  about  98-100%, and the segment continues to record double-digit revenue growth. Sunway Putra Mall  is  still on track to reopen in 4QFY15.  More than 70%of  tenants  have  signed  up  for  the  mall,  and  management  aims  to increase  occupancy  to around 80-90%  within the first year of operation. The hospitality segment is also expected to register healthy growth this year  as  most  assets  have  just  completed  their  refurbishment  works. Furthermore,  the  acquisition  of  Sunway  Hotel  Georgetown  was completed  yesterday  and  should  provide  a  boost  to  the  segment’s contributions.  Management  is  still  bearish  on  the  office  segment,  as  it continues  to  struggle  in  its  efforts  to  retain  tenants  and  seek  new tenants.  Nonetheless,  the  growth  in  the  other  two  segments  will  likely mitigate the loss of income from the office segment.  SunREIT continues to  actively  seek  new  acquisition  prospects,  and  are  considering  both Sponsor assets and third-party assets for injection into the REIT.

Earnings forecasts. We make no changes to our FY15-17 forecasts.

Maintain NEUTRAL. Our DDM-based TP is maintained at MYR1.55. We reiterate that SunREIT’s potential re-rating catalyst will be the injection of yield-accretive assets and the success of Sunway Putra’s revamp.

Source: RHB