9MFP21 realised net income (RNI) of RM89.7m came in broadly within our and consensus expectations at 35% and 30%, respectively, as we expect a better 2HCY21. No dividends, as expected. Given the recent spike in COVID-19 cases, we expect near-term earnings weakness (4QFP21E) and have lowered FP21E earnings by 14%, but all in, we still expect a better 2HCY21 from a better 5Q-6Q FPE21. FY22E earnings remain unchanged. Maintain MP on a lower TP of RM1.45 (from RM1.55) on a higher spread of +1.9ppt to the MGS target due to the uncertainty of the pandemic.

9MFPE21 realised net income (RNI) of RM89.7m came in broadly within our and consensus’ estimate at 35% and 30%, respectively, on expectations of recovering retail sales in coming quarters, particularly 2HCY21 upon the wider roll-out of Covid-19 vaccines and eventual easing of recent MCOs, bringing confidence back to retail and hospitality segments. Note that FP21E consist of 6 quarters or 18 months as the Group is changing its FY-end to Dec (from June). No dividends, as expected.

Results’ highlight. YoY-Ytd, top-line was down by 32% dragged by: (i) retail (-39%) and (ii) hospitality (-59%) segments, but the office (+42%) and services (+3%) segments remained positive. All in, RNI was down by 57% despite lower operating cost (-5%), expenditure (-7%) and financing cost (-19%) post share placement and lower cost of debt. QoQ, top-line was up by 9% on contribution from most segments save for retail (-6%). Office segment was up by 33% on full quarter contribution from Sunway Pinnacle and stable contribution from other assets, while hospitality was up by 82% on guaranteed income received for Sunway Clio property and Sunway Hotel Georgetown. As a result, RNI was up by 12% aided by lower financing cost (-6%) on lower cost of debt. Gearing remains stable at 0.37x.

Outlook. We remain cautious for FP21E especially in the near term due to the recent spike in COVID-19 cases over the last few days. As such, we expect rental assistance to increase up till 4QFP21 for now, while 5Q- 6Q is expected to be better premised on wider roll-out of vaccines and eventual loosening of the tighter MCO guidelines to curb the recent rise in cases which should deliver confidence back to the retail and hospitality segments. The office and services segments are expected to remain stable.

Lower FP21E CNP by 14% on near-term weakness. Despite 9MFPE21 results coming in broadly within expectation, and given the recent turn of events with the Covid-19 situation as of yesterday hitting an all-time high of >6000 daily cases, we anticipate short-term weakness for the next quarter at least which may increase the intensity of rental assistance for retail tenants. We expect mildly negative reversions and increased rebates in the near term (1Q to 4Q). The hospitality segment is expected to remain challenging, seeing 25% occupancy while the office and industrial segments are expected to remain stable for now. As such, we lower FP21E CNP by 14% to RM222m, while FY22E CNP remains unchanged at RM271m for now. FP21E/FY22E NDPU of 5.6-6.8 sen provides 3.9-4.8% net yield.

Maintain MARKET PERFORM but on a lower TP of RM1.45 (from RM1.55). Our TP is based on an unchanged FY22E GDPS/NDPS of 7.5 sen/6.8 sen but on a higher spread of +1.9ppt at 0.5SD (from +1.6ppt average) on our 10-year MGS target of 3.30%. Our higher applied spread is to account for the fluidity of near-term earnings weakness in light of the Covid-19 pandemic, considering its exposure to the retail and weak hospitality segments.

Risks to our call include: (i) bond yield compression and expansion, and (ii) stronger or weaker-than-expected earnings in retail, hospitality and office divisions.

Source: Kenanga Research - 20 May 2021