Concomitantly, Sunway REIT management does not expects the coronavirus outbreak to have a material impact on its retail business for now, barring a prolonged or worsening of the outbreak.
There is a risk of a larger impact on the hotel business, prompting management to lower its room rates in a bid to improve occupancy.
"SREIT’s master lease agreements with the vendors should cushion its hotels’ earnings downside during this difficult time.
"We recommend that investors look beyond the possible near-term earnings blip
and stay invested," said Affin Hwang.
The research house has a target price of RM2 on the stock.
To recap its earnings announcement, Sunway REIT's 6MFY20 realised net profit grew 4.6% year-on-year to RM146mil owing to the maiden contribution from Sunway University & College Campus and a higher post-refurbishment contribution from Sunway Resort Hotel and Spa that offset weaker retail NPI.
The six-month result made up 50% and 47% of Affin Hwang's and consensus full-year estimates respectively.
On a quarter-on-quarter basis however, 2QFY20 core net profit fell 2.1% to RM72.1mil due to higher A&P and maintenance costs for Sunway Pyramid and Sunway Carnival mall, and lower revenue from Sunway Clio.
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