SUNREIT's FY24 results were below expectations on Sunway Pyramid's lower-than-expected operating margins in the year, likely due to the opening of the new Oasis Wing. Its core net profit grew by 7% YoY, mainly driven by newly acquired retail assets and stronger performance from Sunway Pyramid and Sunway Carnival post refurbishments. Though we lowered our FY25F earnings by 8%, we raised our TP from RM2.01 to RM2.07 (+3%) as we rolled over our valuation base year to FY26. Reiterate our OUTPERFORM call.

SUNREIT's FY24 full-year core net profit came in at RM351.3m, meeting the full-year consensus estimate at 100% but missed our full-year forecast by 7%. The difference was mainly due to a slightly lower-than-expected operating margin for Sunway Pyramid mall in the year. An estimated after-tax distribution of 4.9 sen was announced in the quarter, bringing the total NDPU to 9.2 sen, within our forecast of 9.1 sen.

YoY, SUNREIT's FY24 revenue and net profit both increased by 7%, mainly driven by the inclusion of rental income from newly acquired assets such as six new hypermarkets in April 2024, and Sunway 163 mall in October 2024. This was further bolstered by stronger performance from Sunway Pyramid and Sunway Carnival post refurbishments.

QoQ, both revenue and net profit surged by 15%, largely attributable to the newly acquired Sunway 163 mall and higher rental income from Sunway Pyramid new wing - the OASIS.

Outlook. SUNREIT is set to fully recognise income from multiple new assets in FY25, being the six new hypermarkets, Sunway 163 mall and Sunway Kluang mall. We gathered that Sunway Pyramid's new wing - the OASIS which accounts for 11% of its NLA, has transformed into a lively and vibrant shopping space that is now attracting 40% higher footfalls. In addition, the progressive refurbishment works in Sunway Carnival that will be completed by mid FY25 will bring in even more offerings in the mall in Seberang Jaya and further boost SUNREIT's earnings. We remain confident that its hotel segment will continue to see revenue growth following government's higher budget allocation in promoting tourism.

Downside risk remains to be the upcoming subsidy rationalisation in FY25.

Forecasts. Following latest progresses and model updates, we lowered our FY25F earnings by 8%. This is inclusive of earnings from the group's recent acquisition of the AEON mall in Manjung, Perak which is set to contribute RM9m NPI annually. We also introduced new FY26F numbers.

Valuations. Raised TP from RM2.01 to RM2.07 (+3%) as we rolled over our valuation base year to FY26F while maintaining our OUTPERFORM call. The basis of our TP remains unchanged at a target yield of 5.25% (derived from a 1.5% yield spread above our 10-year MGS assumption of 3.75%), The relatively lower yield spread against what we applied to its peers is to reflect SUNWAY's diversified asset portfolio in key urban regions. We reckon that the group's brand equity also benefits greatly from its affiliation to the Sunway conglomerate. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Risks to our call include: (i) higher-than-expected bond yield, and (ii) lower-than-expected occupancy rates.

Source: Kenanga Research - 4 Feb 2025