Sunway REIT -
Share price: MYR1.37
Target price: MYR1.26 (from MYR1.42)
Earnings On Track
Maintain HOLD with a lower TP. SunREIT’s 1QFY6/14 core net profit of MYR55.4m (+6.5% YoY) was in line. The proposed 1Q DPU of 2sen (-1.5% YoY, -1.0% QoQ) was also within expectations. We maintain our FY6/14-16 earnings forecasts but lower our DCF-based TP by 11% to MYR1.26 after factoring in a higher beta assumption of 0.8 (from 0.6). Near-term earnings prospects are largely dependent on its crown jewel, the Sunway Pyramid shopping mall (SPSM).
1QFY6/14 results tracking expectations. SunREIT’s 1QFY6/14 realised net profit was MYR55.4m (+6.5% YoY, -0.2% QoQ), making up 24% of our and consensus full-year estimates. The sequential decline in earnings was due to: 1) weaker hotel performance on slower corporate activities, 2) the closure of Sunway Putra Mall since end-Apr 2013 for enhancement works and 3) lower occupancy rates (-1.8ppt YoY) in Sunway Carnival Mall (SCM) after the non-renewal by a mini anchor tenant since Jun 2013 (Giant; 39,676 sqft NLA or c.0.2% of total revenue). The YoY and QoQ decline in DPU, meanwhile, was mainly due to a larger number of units post the private placement in Feb 2013.
Mixed-asset portfolio outlook. SPSM will remain SunREIT’s key earnings driver for the next two years as Sunway Putra Place (SPP)’s enhancement works will only be completed by Feb 2015, while Sunway Medical Centre will provide a strong base for earnings. Hotel businesses remain volatile while its offices will continue to be pressured by the current office supply glut.
SPSM, the jewel. SPSM continues to attract renowned international tenants into the mall such as Thomas Sobo, Armani Exchange and soon-to-be opened Sephora, H&M and TWG Tea Company. SPSM has thus far recorded a positive rental reversion of +14.4% for renewed leases. About 38.2% of SPSM’s NLA will be due for renewal in FY6/14.
SPP is on schedule. The enhancement works for SPP started in May 2013, and are on schedule to meet its Feb 2015 completion deadline. The mall is in talks with potential tenants and is targeting mini anchors (20,000-25,000sqft) that could command better rentals.
Publish date: 30/10/13