MIDF Research has maintained a ”Buy” recommendation on Sunway REIT with a target price of RM1.68 from RM1.70, based on the Dividend Discount Model.
It said that it remains positive on Sunway REIT as we see strong earnings recovery in FY22 and FY23 mainly led by retail segment.
Besides, it said that the reopening of international borders is expected to support the recovery of its hotel division.
MIDF said that as Malaysia entered the transition to the endemic phase, the retail division of Sunway REIT staged strong surge in earnings due to recovery in shopper footfall and tenant sales.
The research house said that the shopper footfall and tenant sales recovered to the pre-Covid level due to revenge spending and festive season that has led to rental rebate easing significantly in 1HFY22.
On the increase of +25bps in OPR, MIDF said that it is expected to raise the borrowing cost of Sunway REIT as 68% of Sunway REIT’s debts are floating rate borrowings.
It said that it expects a mild earnings impact on Sunway REIT from the OPR hike as every +25bps hike in OPR is expected to increase the financing cost of Sunway REIT by ~RM8m which is around 2% of our FY22 and FY23 earnings forecast.
