• Maintain BUY and DDM-derived MYR2.07 TP, 11% upside and 6% FY25F yield. Sunway REIT's FY24 results were in line with expectations, with solid earnings growth driven by the retail and hospitality segments, as well contributions from its newly acquired properties. We continue to like the REIT for the solid growth prospects from its diversified portfolio, as well as upside from its active acquisition strategy and asset enhancement initiatives.
• Results in line. 4Q24 core profit of MYR99.1m (+11% QoQ, +26% YoY) led to a FY24 core profit of MYR354m (+5% YoY) - in line with expectations at 100-101% of our and Street estimates. The YoY growth was led by the contributions of its newly acquired properties, namely the six Sunway REIT hypermarkets from April and Sunway 163 Mall from October. This offset the loss of income from the disposal of Sunway Medical Centre in Aug 2023. NPI margin stayed stable at 74% (FY23: 73%) as costs remained in check. The REIT recorded its highest ever DPU at 10 sen in FY24 (FY23: 9.3 sen).
• Retail and hospitality leading the line. Excluding the newly acquired properties, the retail segment's revenue rose by 5% in FY24. The average gross rent grew by 18% boosted by the renovations in Sunway Pyramid and Sunway Carnival, of which the full-year contribution should only be reflected in FY25. The hospitality segment, despite just recording a slight improvement in occupancy rates (FY24: 64%, FY23: 63%), recorded 10% higher revenue in FY24 as it saw an increase in meetings, incentives, conferences, and exhibitions (MICE) events. As room rates are already high, we think growth for the segment moving forward would come from higher occupancy rates as Malaysia gears up for Visit Malaysia 2026. The office segment was flat YoY as higher occupancy rates in Menara Sunway and Sunway Tower offset the loss of a tenant in Sunway Putra Tower.
• Gearing at 41.4%. We expect gearing to increase to 42% as it completes the acquisition of AEON Mall Seri Manjung for MYR138m by 2Q25. Looking ahead, we expect the REIT to fund its next major acquisition partially via equity as it nears the 45% gearing level, which could provide an opportunity to increase the stock's liquidity.
• We keep our FY25F-26F earnings unchanged, and introduce FY27F earnings of MYR437m. Our TP includes a 4% ESG premium based on our in-house methodology.
• Key risks: Lower-than-expected occupancy and rental reversions, and longer-than-expected delays in acquisitions.

Source: RHB Research - 4 Feb 2025