KEY INVESTMENT HIGHLIGHTS

• Acquisition of AEON Mall Seri Manjung
• Earnings accretive acquisition
• Earnings forecast revised upwards
• Earnings forecast maintained
• Maintain BUY with a revised TP of RM1.99 from RM1.98

Acquisition of AEON Mall Seri Manjung. Sunway REIT has entered into a conditional sale and purchase agreement with Kar Sin Berhad and YNH Hospitality Sdn Bhd, a subsidiary of YNH Property Berhad, to acquire AEON Mall Seri Manjung located in Manjung, Perak for purchase consideration of RM138m. The mall has a net lettable area of 427,919 sq. ft. and is 100% leased to AEON Co (M) Bhd.

Earnings accretive acquisition. The acquisition of AEON Mall Seri Manjung is expected to be positive to Sunway REIT as the property is acquired at net property income yield of 6.5% which is expected to be earnings accretive. Note that average cost of debt of Sunway REIT is 3.9% while the NPI yield for AEON Mall Seri Manjung is in line with recent acquisition yield of 6.5%-7%. Meanwhile, the purchase consideration of RM138m is slightly lower than market value of RM145m. The mall is expected to generate stable income to Sunway REIT as it is the leading neighbourhood mall in Manjung with strong tenant being AEON Co (M) Bhd. The acquisition also marks the geographical diversification of Sunway REIT in the northern region of Malaysia. Note that Manjung has strong economic prospects with accessibility of WCE highway and catalyst from the Lumut Maritime Industrial City.

Earnings forecast revised upwards. We estimate the acquisition to increase gearing of Sunway REIT marginally to 0.44x from 0.43x in 3QFY24. Meanwhile, we revise our FY25F/FY26F earnings forecast by +0.8%/+0.6% after factoring in earnings contribution from AEON Mall Seri Manjung.

Maintain BUY with a revised TP of RM1.99. Corresponding to the earnings revision, we revise our TP for Sunway REIT to RM1.99 from RM1.98. Our TP is based on dividend discount model. We see stronger earnings outlook for retail division of Sunway REIT mainly driven by reconfiguration of Oasis wing at Sunway Pyramid Mall. Besides, the newly acquired Sunway 163 Mall and Sunway Kluang Mall are expected to lift earnings in FY25. Hence, we maintain our BUY call on Sunway REIT.

Meanwhile, distribution yield is estimated at 5.0%.

Source: MIDF Research - 22 Jan 2025