Worst probably over for Sunway REIT as analysts see earnings recovery

KUALA LUMPUR (Aug 4): The worst is probably over for Sunway Real Estate Investment Trust (Sunway REIT), analysts said today, as they expect the property trust’s earnings to recover in the coming quarters after the group contended with the impact of the Covid-19-driven movement control order (MCO) in Malaysia to curb the outbreak.

Analysts from Hong Leong Investment Bank Bhd (HLIB) and MIDF Amanah Investment Bank Bhd said this today in their notes after Sunway REIT reported yesterday net property income fell to RM416.81 million in financial year ended June 30, 2020 (FY20) from RM439.7 million a year earlier, while group net profit fell to RM208.21 million from RM386.37 million.

Today, HLIB analyst Nazira Abdullah said that overall, Sunway REIT’s performance was affected by Covid-19 headwinds, coming from rental support granted to retail tenants during the MCO period and lease rebate given to hotel lessees.

“(But) we believe the worst is over for Sunway REIT and we expect a recovery in FY21, coupled with new contribution from newly acquired The Pinnacle Sunway. Management shared that during CMCO/RMCO, footfalls and tenants sales growth in their malls has shown some encouraging recovery signs, although their renewal has been hampered with negative double digit rental reversion,” Nazira said.

CMCO and RMCO stand for Malaysia’s conditional movement control order  and recovery movement control order respectively.

“Management (however) expects that FY21 rental reversion to be flattish on the back of economic uncertainties. Meanwhile, for hotel segment, management has seen some uplift in their occupancy as hotels operators marched in with attractive promotions to reactivate travelling activities. Its office segment is relatively more insulated and stable, in view that these office properties are located in established locations. Furthermore, their services segment and “industrial & others” segment are expected to continue to perform as usual despite the crisis, as they are generally unaffected by Covid-19 and MCO/RMCO,” she said.

According to Sunway REIT’s website, the property trust has a diverse real estate portfolio across Peninsular Malaysia. With an initial portfolio of eight properties, Sunway REIT’s portfolio has grown to 17 properties including retail malls,  hotels and offices, it said. Sunway REIT said its portfolio also includes a medical centre, industrial property and purpose-built campus.

"Property value has grown by more than 100% from an initial RM3.46 billion to RM7.92 billion as at 30 April 2019,” it said.

Today, MIDF analyst Jessica Low Jze Tieng said MIDF maintained its  buy call on Sunway REIT units, as MIDF expect the property trust’s earnings to recover in the coming quarters.

"Besides, we like Sunway REIT’s diversify portfolio with recurring income from different segments. She said MIDF revised its Sunway REIT TP to RM1.70 from RM1.82.

Nazira said HLIB reiterated its buy call for Sunway REIT, with an unchanged TP of RM1.74.

At Bursa Malaysia today, Sunway REIT’s unit price closed up four sen or 2.67% at RM1.54 for a market capitalisation of about RM4.54 billion. The stock saw 1.59 million units traded.

Sunway REIT’s latest reported net assets per unit stood at RM1.48.

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