Sunway REIT’s (SREIT) 2QFY21 came in weaker than expected with realised net profit of RM33.5m (-56.6% YoY, -2.6% QoQ) which was again dragged by the pandemic-induced slowdown which affected most of its assets especially retail and hospitality. YTD, Group realised net profit of RM67.8m (-56.5% YoY) just constituted 39% of our full year estimates. During the quarter, the recovery of the retail and hotel segments was again adversely impacted by the reinstatement of conditional movement control order (CMCO) in various states in the country amidst the resurgence of COVID-19 cases. As such, gross revenue for the retail segment in 2QFY21 dropped 47% to RM56.8m attributable to the implementation of CMCO in October which has stalled the footfall and sales recovery. With the change of its financial year end to December from June, we now expect 18-month FY21 net profit of RM267.5m from RM173.3m previously. Maintain Neutral call but cut our TP to RM1.55 (from RM1.65 previously) as we impute a higher adjusted risk premium.

• Retail remains challenging. Group retail segment recorded gross revenue of RM56.8m in 2QFY21 or a decrease of 47% YoY mainly due to rental support for affected tenants and lower carpark income amidst implementation of CMCO in KL and Selangor since 14 October 2020. The net property income (NPI) correspondingly recorded a reduction of 54% or RM40.1m YoY. With current MCO in place until Feb 18 and the worrying high level of daily cases, we believe consumer sentiment could remain weak in the near term which could further dent retail earnings.

• Hotel revenue down 65% YoY. Group hotel segment recorded 2QFY21 gross revenue of RM7.9m or a drop of 65% YoY due to further restrictions on interstate and district travel, group and corporate events with CMCO in KL and Selangor since 14 October 2020, as well as closure of Sunway Resort Hotel for phased refurbishment since July 2020. This was partially cushioned by guaranteed income accrued for the Sunway Clio property during the quarter. Correspondingly, NPI declined by 69% or RM14.4m YoY. Average occupancy remained weak at 31% vis-à-vis 34% in 1QFY21.

• Office segment still steady with YTD gross revenue of RM25.0m, an increase of 22% YoY, largely contributed by the new income of RM4.1m from The Pinnacle Sunway acquired on 20 November 2020. NPI correspondingly recorded an increase of 37% YoY to RM15.2m.

Source: PublicInvest Research - 10 Feb 2021