Sunway REIT earnings to remain buoyant, says CIMB Research

KUALA LUMPUR: CIMB Equities Research expects Sunway REIT’s earnings to remain buoyant, underpinned by positive rental reversions and high occupancy rates at its retail assets, particularly Sunway Pyramid and Sunway Carnival.

However, it still foresees slower growth from its hotel assets for FY17F, according to the  research note issued  on Thursday. 

“We maintain our Hold call and dividend discount model-based target price of RM1.74 as we think the stock is fully valued at current levels.  Upside risk to our Hold call is stronger occupancy at its hotels while downside risk is non-renewals in its office segment,” it said.

CIMB Research said Sunway REIT’s 9MFY6/17 core net profit of RM205.6mil was in line with expectations, at 75% of its and Bloomberg consensus full-year forecasts. The company declared 3QFY17 distribution per unit (DPU) of 2.37 sen, bringing 9MFY17 DPU to 6.92 sen.

The 9MFY17 revenue growth of 1% on-year was mostly driven by retail and office assets, which offset weaker hotel segment performance.

Sunway REIT posted 3QFY17 revenue and core net profit of RM134.6mil (+3.2% on-year) and RM70.4mil (+8.6% on-year), respectively. 

This brought its 9MFY17 revenue and core net profit to RM390.3mil (+1.8% on-year) and RM205.6mil (+2.4% on-year), respectively, on the back of stronger retail and office segments which offset the softer hotel segment. 

Sunway REIT declared a 3QFY17 DPU of 2.37 sen which brought its 9MFY17 DPU to 6.92 sen (-2% on-year). The lower DPU was due to the cessation of payment of manager’s fees in units with effect from FY17. 

The group’s cumulative DPU was broadly in line with CIMB Research’s FY17F DPU forecast of 9.7 sen.

Sunway REIT’s 3QFY17 revenue growth mainly came from higher contributions from Sunway Pyramid (+2.4% on-year) and Sunway Putra Mall (+17.4% on-year) which recorded positive rental reversions and higher occupancy rates. 

Meanwhile, the group’s office segment revenue rose 18.3% on-year on higher occupancy rates, particularly at Menara Sunway and Sunway Putra Tower. 

Accordingly, 3QFY17 net property income (NPI) for retail/office segments rose 3.5%/69.4% on-year to RM75.9mil/RM4.5mil, respectively.

The group’s 3QFY17 NPI increased 3.6% on-year to RM100.2mil, but was slightly negated by the drop of 7% on-year in hotel segment NPI. 

The softer hotel performance was attributed to lower NPI contribution from Sunway Pyramid Hotel (-72% on-year) as a result of its closure for refurbishment works since 4QFY16. 

On top of this, Sunway Resort Hotel & Spa also saw its NPI fall 1% on-year due to slower leisure and corporate businesses.

“We note that 3QFY17 is traditionally the weakest quarter for the group’s hotel segment,” it said.