Stellar Performance From Sunway REIT, Outlook Solid: MIDF

Sunway REIT FY22 core net income of RM336.6m came in within expectation but slightly above consensus expectation, making up 98% and 106% of consensus full year estimates respectivelysaid MIDF. Distribution per unit (DPU) of 5sen was also announced, bringing total DPU to 9.22sen in FY22 which translates into gross yield of 5.8%

Sequentially, 4QFY22 core net income was lower at RM82.1m (-10.7%qoq) despite higher topline (+12.3%qoq) as earnings were dragged by higher property operating expenses and higher finance cost. On yearly basis, 4QFY22 core net income was higher at RM82.1m, bringing cumulative earnings in FY22 to RM336.6m. The stellar earnings in FY22 were mainly underpinned by higher contribution from retail and hotel divisions. Net property income (NPI) of retail division more than doubled in FY22 due to lower rental support to tenants and contribution from Sunway Carnival new wing.

Similarly, NPI of hotel division was higher (+82.8%yoy) due to reopening of Sunway Resort Hotel and higher hotel room occupancy following reopening of economy and country border. Meanwhile, contributions from office and other segments remained stable. Earnings forecast fine-tuned. MIDF fine-tuned its FY23 earnings forecast by -1.3% to reflect loss of income from Sunway Medical Centre.

Note that Sunway REIT announced disposal of Sunway Medical Centre (Tower A & B) in December 2022 and the disposal is expected to complete in 1HFY23. Looking forward, the research house remains positive on earnings outlook for Sunway REIT due to positive rental reversion outlook for retail segment. Besides, the reopening of Sunway Resort Hotel and higher tourist arrivalshould support earnings growth of hotel division.

Maintain Buy with an unchanged TP of RM1.73. The house makes no changes to its TP for Sunway REIT at RM1.73, based on Dividend Discount model. MIDF maintains a BUY call on Sunway REIT as it expect earnings from retail and hotel divisions to remain solid in FY23 which will support earnings growth of Sunway REIT. Meanwhile, distribution yield is estimated at 5.8%

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