Sunway REIT - No Surprises

Sunway REIT’s 3QFY14 results came in line with expectations. A DPU of 2.10 sen was declared  for  this quarter.  Management continues to guide for  flattish  DPU  growth  in  FY14  due  to  the  higher  property  expenses and  challenging  short-term  outlook  for  its  commercial  and  hospitality assets.  There are no changes to  our forecasts. Maintain NEUTRAL and FV of MYR1.39.

• Still in line. Sunway REIT’s 3QFY14 net profit of MYR58.5m (+5.9% y o-y;  -5.7% q-o-q) brought 9MFY14 net profit to MYR175.9m, up 7.7% y o-y.  9M revenue growth was flattish at about 2.0%, as the incremental contribution from Sunway Pyramid and Sunway Carnival was offset by the loss of income from Sunway Putra Mall.  Sunway REIT’s 3QFY14 net property income  (NPI) margin  declined slightly  to  74.6%  (vs  2QFY14’s 76.5%),  attributable  to  higher  utilities  expenses  and  provisions  for increased  Kuala Lumpur  assessment  expenses.  Nonetheless,  net profit growth  remained  healthy  due  to  Sunway  REIT’s  proactive  capital management.  A  DPU  of  2.10  sen  was  declared  for  3QFY14,  bringing total YTD DPU to 6.33 sen – in line with forecasts.
• Short-term  outlook  remains  challenging.  Management  continues  to guide  for  a  flat  or  potentially  negative  growth  in  FY14’s  DPU  during yesterday’s  briefing.  The  short-term outlook for the hospitality and office sector is expected to remain challenging. Furthermore, management has shared that the provisional assessment rates for its Kuala Lumpur-based assets have  gone up by 40-200%, although Sunway REIT has appealed to the Kuala Lumpur City Hall (DBKL) and is currently awaiting DBKL’s final  decision  on  the  matter.  However,  Sunway  Pyramid  continues  to record decent rental reversions – in the mid-teens over a 3-year period –and,  as such,  this  should  help to buoy earnings over the  short-term. We are  more  positive on Sunway REIT’s longer-term prospects, as Sunway Putra Place’s refurbishment is currently 45% completed and is  on track to fully reopen in early CY15.
• Maintain NEUTRAL. Forecasts are unchanged. Maintain NEUTRAL and MYR1.39 FV. We reiterate our view that the completion of Sunway Putra Place’s refurbishments in CY15 and the acquisition of new assets will be the next re-rating catalysts for Sunway REIT.

 

 

 

 

 

 

 

 

Company Profile
Sunway REIT is a large-cap diversified MREIT, with exposure in the retail, commercial, hospitality and healthcare segments.