Sunway REIT (SREIT) ended FY23 with its realised net profit coming in at RM73.4m (-17.3% YoY, -15.6% QoQ) mainly due to higher reversal of doubtful debt provision and impact of higher electricity costs across all business segments. YTD, the Group netted realised net profit of RM319.0m (-2.8% YoY) which was within our expectations but below consensus at c.101% and c.94% of respective full year profit forecasts. For FY23, Group revenue rose 10% YoY to RM715.7m while its net property income (NPI) climbed 5% YoY to RM526.9m in FY23. The revenue growth was mainly lifted by robust performance from the Retail and Hotel segments, coupled with resilient performance across Office, Services, Industrial and Others. Separately, SREIT just announced the planned acquisition of 163 Retail Park, a freehold prime retail mall centrally located at Mont’ Kiara for RM215m (to be completed by 1H24). No change to our earnings estimates for now. Given the limited share price upside, we maintain our Neutral call with TP unchanged at RM1.55.

• Retail revenue rose 11% YoY in FY23 to RM472.9m while NPI rose 4% YoY to RM320.8m. We understand that the retail segment experienced improved performance due to healthy growth across all retail properties on the back of sustained retail footfall and encouraging retail sales during the festive seasons and school holidays. Notably, Sunway Carnival Mall’s stellar performance contributed significantly to the Retail segment’s growth in the financial year, building upon the momentum from the launch of its new wing in June 2022.

• Hotel segment was one of the key contributors in FY23, with the segment achieving revenue increase of 38% YoY to RM87.1m. The Hotel segment’s average occupancy rate improved from 54% in FY22 to 64% in FY23. Correspondingly, Hotel segment’s NPI climbed 39% YoY to RM82.4m in FY23 underpinned by a surge in domestic and leisure tourist arrivals in conjunction with the festive seasons and school holidays, a steady recovery in international business supported by improved flight connectivity, alongside a sustained demand for Meetings, Incentives, Conferences, and Exhibitions (MICE) activities.

• Office segment’s revenue rose 4% YoY to RM82.6m in FY23, attributed to positive rental reversion and stable average occupancy rate of 84% during the year. Office segment’s NPI edged up marginally by 1% YoY to RM52.2m as margins were squeezed by higher electricity costs. Elsewhere, the Services segment contributed revenue and NPI of RM55.2 million for FY23, representing a decrease of 13% YoY primarily due to the completion of disposal of Sunway Medical Centre (Tower A & B) on 30 August 2023.

Source: PublicInvest Research - 31 Jan 2024