• Maintain BUY, new DDM-derived MYR1.94 TP from MYR1.92, 6% upside and c.6% FY25F yield. Sunway REIT’s results were in line with expectations, with income growth driven by the retail and hospitality segments while the office segment remains stable with a flat rental reversions outlook. The REIT now has an asset under management (AUM) of MYR10bn, and we remain positive on its outlook, given its aggressive acquisition strategy and solid growth prospects from a diverse property portfolio.

• Results in line. 3Q24 core profit of MYR89.1m (+14% QoQ, +3% YoY) led to a 9M24 core profit of MYR249.1m (+1% YoY) – in line with expectations at 70% of our and Street’s estimates. The YoY growth is led by the full-quarter contributions of the six Sunway REIT hypermarkets acquired in 30 April, which offset the loss of income from the disposal of Sunway Medical Centre. NPI margins remained stable at 74% YTD, but net margin was slightly lower at 45.6% (9M23: 46.8%) due to higher cost of borrowings (9M24: 3.88%, 9M23: 3.76%).

• More upside for retail. Excluding the newly acquired hypermarkets, the retail segment revenue grew 4% despite the temporary drop in occupancy levels for Sunway Carnival Mall due to ongoing refurbishments, which should be completed by June 2025. This was led by the mall itself, which recorded 25% higher revenue YoY, reflecting the results of its upgrades. Sunway Pyramid recorded flat revenue growth, but we expect to see a pickup in 4Q24 following the opening of its newly renovated Oasis wing in Nov 2024 (after being closed since 3Q23). Management shared that the space now records rental rates of MYR16psf vs MYR6psf with the previous anchor tenant. With a low-teen rental reversion for the retail segment YTD, we continue to be positive on the outlook for this segment.

• Hotels continue to benefit from the improving tourism industry, mainly Sunway Hotel Seberang Jaya, Sunway Hotel Georgetown, and Sunway Putra Hotel, which achieved pre-pandemic levels of foreign tourist arrivals. Revenue and NPI YTD improved 6%, with an average occupancy level of 65% (9M23: 63%), and 2% higher average daily rate (ADR). Sunway Hotel Georgetown’s master lease will be renewed for a period of 10 years, with a rent formula of 90% on the hotel’s gross operating profit.

• We keep our FY24-25F earnings forecasts unchanged, but our TP is raised to MYR1.94 after we increased our long-term rental reversion assumption for Sunway Carnival Mall. Our TP includes a 4% ESG premium based on our in-house methodology.

• Key risks: Lower-than-expected occupancy and rental reversions, and longer-than-expected delays in acquisitions.

Source: RHB Securities Research - 15 Nov 2024