Recently, we observed its share price has declined
more aggressively than its peers over past one month with -5.3% returns
on the period vs. peers’ average returns of -0.5%. As a result, SUNREIT
is trading at 7.1% gross dividend yield vs other MREITs at 5.3%-6.1% at
current levels. While the volatile bond market has caused MREITs’ unit
prices under our coverage to ease, SUNREIT experienced worse performance
due to concerns on its office and hospitality segments. In our
potential worst-case scenario analysis, we trimmed FY16E numbers for
both the office and hospitality segment, as shown in Table 1 (refer overleaf).
For the office segment, we assumed no new tenants will be secured in
FY16 and tweaked our occupancy assumptions lower, based on historical
low levels for: (i) Sunway Tower, to 20.0% (from 39.0%), after the
anchor tenant, Ranhill Worley Parsons (Ranhill) vacated the premise and
(ii) Menara Putra Tower, to 26.0% (from 55.0%). In the hospitality
segment, we lowered occupancy rates closer to 1Q16 occupancy rates for:
(i) Sunway Hotel Seberang Jaya to 60.0% (from 75.8%), assuming
competition in Penang Mainland persists, and Sunway Putra Hotel to 40.0%
(from 51.5%), assuming no growth in occupancy rates. We maintained our
retail assumption as we have already imputed conservative assumptions
previously. To recap, we have imputed lower FY16E occupancy rates for
Sunway Putra Mall in 4Q15 results review and also forecasted low single
digit step up rates in FY16E for other retail assets.
Impact of worst-case scenario is not so alarming after all. Based
on our worst-case scenario analysis, we expect FY16E RNI to reduce by
7.0% after adjusting for higher direct property expenses (+3.3%), as we
expect higher up-keeping cost. All in, GDPU will be lowered to 9.6 sen
(from 10.2 sen), implying gross yields of 6.6% (net yield: 6.0%), which
is still higher than our MREIT universe average of 6.0% (range:
5.3%-6.6%).
We still like SUNREIT for its new asset contribution and visible acquisition pipeline. Despite
the potential weaknesses highlighted above, we expect FY16E to be
better than FY15 as contributions from Sunway Putra Place (SPP) will be
mostly accretive in FY16E. Additionally, SUNREIT has a strong visible
pipeline of asset acquisitions in place (i.e. The Pinnacle Sunway,
Sunway University, and Sunway Pyramid 3). Assuming that SUNREIT fully
funds the acquisitions via debt, we believe the group can gear up to
0.40x from current levels of 0.33x, which is still within the group’s
comfortable gearing level. This translates to additional RM460m
borrowing capacity.
Valuation is still justifiable and warrants an OUTPERFORM. We
opine that our applied gross yield spread of +1.9ppt to the 10-year MGS
target of 4.0% is justifiable, i.e. target gross yield of 5.9% (net:
5.3%), given that it is higher than our MREIT universe’s average gross
yield spreads of +1.8ppt (range: 1.0ppt-2.5ppt). The higher yield
spreads take into account the potential weaknesses in the hospitality
and office segments as well as it being a mixed segment MREIT. In our
worst-case scenario analysis, assuming we lower GDPU to 9.6 sen (from
10.2 sen) whilst maintaining our target gross yield spread, this would
only lower our TP to RM1.62 from RM1.73; this would imply a yield of
6.6% vs. the peers’ average of 6.0%. At this juncture, we opt to leave
our earnings and TP unchanged, pending clarity from upcoming 2Q16
results on 27-Jan-16.
We maintain OUTPERFORM call with TP of RM1.73, based
on a target gross yield of 5.9% (net yield of 5.3%). Risks that will
alter our call are weaker-than-expected occupancy rates from office and
hospitality segments, higher-than-expected direct property expenses, and
lower-than-expected contribution from SPP.
Source: Kenanga Research - 22 Jan 2016
No comments:
Post a Comment