Sunway REIT Off To A Good Start In 2023

Sunway REIT 1QFY23 core net income of RM96.5m came in within expectations, making up 27.6% and 26.8% of consensus full-year estimates respectively. As expected, research house MIDF said no distribution per unit (DPU) was announced for 1QFY23 due to its bi-annual distribution policy.

Starting off 2023 on a strong note, the 1QFY23 core net income grew to RM96.5m with sequential earnings growth mainly driven by higher contribution from the retail division. Net property income of the retail division was higher at RM89.9m mainly due to positive rental reversion and higher tenant sales. On a yearly basis, 1QFY23 core net income was steady at RM96.5m, in line with a higher topline (+18.7%yoy). The solid earnings in 1QFY23 were mainly underpinned by the recovery of the retail division. The retail division recorded encouraging growth in NPI due to positive rental reversion and the absence of rental support to tenants. Besides, the contribution from Sunway Carnival new wing lifted the earnings of the retail division. Meanwhile, NPI of the hotel division was flattish as a higher contribution from most of its hotels was offset by the absence of a top-up of guaranteed NPI from Sunway Lagoon Hotel. Meanwhile, property expenses and financing costs were higher in 1QFY23 which had partly negated earnings growth in the quarter.

MIDF has a positive earning outlook for the group and makes no changes to our earnings forecast for FY23F/24F/25F. Positive on the earnings outlook as rental reversion of its retail malls particularly Sunway Pyramid Mall is expected to be positive on the back of a recovery in shopper footfall and tenant sales. Besides, the earnings outlook is also supported by the acquisition of assets. Recall that Sunway REIT announced the acquisition of six hypermarkets from EPF for purchase consideration of RM520m which is expected to be DPU accretive.

Overall the house maintains a BUY with an unchanged TP of RM1.73 this is based on the Dividend Discount model and continues to see a bright earnings outlook which will be mainly driven by a recovery in the retail and hotel industries.

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