Share price: MYR1.33
Target price: MYR1.42 (from MYR1.60)
In Line; Huge Capex Plan Underway
Maintain HOLD with a lower TP. SunREIT’s FY6/13 core net profit of MYR219m (+15% YoY) was in line. The proposed fourth interim DPU of 2.0sen (YTD: DPU of 8.3sen, +11% YoY) was also within expectations. We adjust our FY14/15 earnings forecasts by +4%/-1% post actual FY6/13 results, and lower our DCF-based TP by 11% to MYR1.42 mainly on higher capex assumptions. SunREIT currently offers a net yield of 5.7% (FY14) vs 4.9% for large-cap REITs.
Results in line. 4QFY6/13 core net profit was MYR55m (+15% YoY, +0.5% QoQ), taking FY6/13 earnings to MYR219m (+15% YoY), making up 104-105% of our and consensus estimates. The strong YoY growth in FY6/13 earnings was due to: 1) earnings contributions from Sunway Medical Centre, 2) positive rental reversions at the retail assets (except Sunway Putra Mall [SPM]), and 3) lower finance costs. This has more than offset the decline in earnings from its hotels and offices due to lower occupancy, as well as at SPM due to renovation works.
Reaping the fruit of proactive capital management. Despite the 2.4% QoQ decline in 4QFY6/13 revenue due to seasonal factors and the closure of SPM at end-Apr 2013, core net profit grew 0.5% QoQ on lower interest costs. 81% of its debt is now fixed-rate (FY6/12: 20%), lowering interest rate risk, and SunREIT is looking to convert the remaining debt to fixed-rate. Average cost of debt was 3.77% as at Jun 2013, from 4.45% in Jun 2012 (-68bps).
Earnings adjustments. We adjust our earnings forecasts to factor in: 1) actual FY6/13 results, 2) a higher capex assumption of MYR500m between FY6/14-15 (from MYR200-250m), 3) additional NLA of 20,362 sq ft in Sunway Pyramid Shopping Mall from the Oasis Boulevard Phase 5 project, and 4) a change in occupancy rate assumptions for Sunway Putra Place. As at Jun 2013, SunREIT’s gearing ratio was 0.31x (from 0.32x at end-3QFY6/13). It aims to raise the REIT’s current investment property value of MYR5.2b to MYR7b in 2-4 years. Assets in the pipeline include Sunway and Monash Universities, Sunway Giza shopping mall and a potential asset from a third party.
Publish date: 12/08/13