Sunway REIT: 2QFY25 Earnings Lifted by Retail Division
Maintain NEUTRAL
Unchanged Target Price RM2.10
1HFY25 earnings within expectations. Sunway REIT 1HFY25 core net income of RM206.7m came in within expectations, making up 54% and 52% of our and consensus full year estimates respectively. Distribution per unit of 5.68sen is announced for 1HFY25.
Lower sequential earnings due to high base effect. On a sequential basis, 2QFY25 core net income eased marginally to RM102.4m (-1.9%qoq), in line with lower topline (-3.4%qoq). The slight drop in earnings were mainly due to lower contribution from retail division which cushioned by the marginally higher contribution from hotel division. Net property income (NPI) of retail division eased by -2.3%qoq mainly due to lower income from Sunway Pyramid Mall as retail business normalised from high base in 1QFY25. Note that retail industry was boosted by festive season in 1QFY25. Meanwhile, hotel division saw recovery in NPI (+4.1%qoq) as earnings in 1QFY25 were softer during Ramadan month.
Earnings lifted by retail division. On a yearly basis, 2QFY25 earnings jumped to RM102.4m (+29.7%yoy). That brought cumulative earnings in 1HFY25 higher at RM206.7m (+24.6%yoy) which was in line with higher topline (+21.5%yoy). The decent earnings growth was spurred by higher contribution from retail division which offset the weaker contribution from hotel and office divisions. NPI of retail division saw decent growth of 33.4%yoy mainly due to higher rental from Sunway Pyramid Mall and contribution from newly acquired assets. Notably, rental income of Sunway Pyramid Mall was supported by positive rental reversion and reconfiguration of Oasis wing which lifted rental rate. On the other hand, NPI of hotel division was weaker (-16.6%yoy) mainly due to softer leisure demand which led to decline in average occupancy rate from 62% to 60%.
Maintain Neutral with an unchanged target price of RM2.10. We make no changes to our earnings forecast for FY25/26/27F. We also maintain our TP for Sunway REIT at RM2.10, based on dividend discount model. While we remain positive on earnings outlook for Sunway REIT which will be mainly underpinned by solid contribution from retail division. Nevertheless, upside is limited following recent increase in share price. Hence, we maintain our NEUTRAL call on Sunway REIT. Distribution yield is estimated at 4.7%.
Sunway REIT: 2QFY25 RESULTS SUMMARY
| FYE Dec (RM’m, unless otherwise stated) | Quarterly Results | Cumulative Results | |||
|---|---|---|---|---|---|
| 2QFY25 | %YoY | %QoQ | 1HFY25 | %YoY | |
| Gross Revenue | 211.4 | 20.4% | -3.4% | 430.3 | 21.5% |
| Net Rental Income (NRI) | 154.9 | 19.8% | -1.5% | 312.1 | 20.1% |
| Net Investment Income | 187.1 | -5.3% | 16.7% | 347.4 | 3.9% |
| Net Income | 129.4 | -10.8% | 24.0% | 233.7 | 0.7% |
| Core Net Income (CNI) | 102.4 | 29.7% | -1.9% | 206.7 | 24.6% |
| Realised EPU (sen) | 3.8 | -10.8% | 24.0% | 6.8 | 0.7% |
| Core EPU (sen) | 3.0 | 29.7% | -1.9% | 6.0 | 24.6% |
| Gross DPU (sen) | 5.7 | 21.9% | N/A | 5.7 | 21.9% |
FINANCIAL SUMMARY
Profit or Loss (RM’m)
| 2023A | 2024A | 2025E | 2026F | 2027F | |
|---|---|---|---|---|---|
| Gross Revenue | 716 | 767 | 803 | 823 | 843 |
| Net Rental Income | 527 | 570 | 615 | 629 | 643 |
| Net Investment Income | 527 | 746 | 621 | 635 | 648 |
| Net Income | 338 | 525 | 378 | 402 | 428 |
| Core Net Income | 338 | 351 | 383 | 402 | 428 |
| Core EPU (sen) | 9.9 | 10.3 | 11.2 | 11.7 | 12.5 |
| Core PER (x) | 21.8 | 21.0 | 19.2 | 18.3 | 17.2 |
| NAV/unit (RM) | 1.61 | 1.71 | 1.73 | 1.74 | 1.75 |
| P/NAV (x) | 1.33 | 1.25 | 1.24 | 1.23 | 1.23 |
Balance Sheet (RM’m)
| 2023A | 2024A | 2025E | 2026F | 2027F | |
|---|---|---|---|---|---|
| Investment Properties | 8,912 | 10,385 | 10,395 | 10,405 | 10,415 |
| Total non-current assets | 8,990 | 10,472 | 10,409 | 10,419 | 10,429 |
| Cash | 425 | 290 | 280 | 198 | 283 |
| Other Assets | 123 | 41 | 131 | 267 | 195 |
| Total Assets | 9,539 | 10,803 | 10,820 | 10,883 | 10,907 |
| LT Borrowings | 2,000 | 2,730 | 2,800 | 2,762 | 2,717 |
| ST Borrowings | 1,637 | 1,737 | 1,789 | 1,843 | 1,898 |
| Other Liability | 386 | 464 | 302 | 308 | 313 |
| Total Liability | 4,023 | 4,931 | 4,891 | 4,912 | 4,928 |
| Unitholders’ capital | 3,434 | 3,434 | 3,434 | 3,434 | 3,434 |
| Other Equity | 2,082 | 2,438 | 2,495 | 2,537 | 2,546 |
| Total Equity | 5,516 | 5,872 | 5,929 | 5,971 | 5,979 |
| Equity + Liability | 9,539 | 10,803 | 10,820 | 10,883 | 10,907 |
Cash Flow (RM’m)
| 2023A | 2024A | 2025E | 2026F | 2027F | |
|---|---|---|---|---|---|
| Cash Receipt from Customers | 727 | 771 | 811 | 831 | 851 |
| Net cash from operating activities | 446 | 544 | 630 | 651 | 672 |
| Subsequent Expenditure of Inv Properties | -200 | -313 | -170 | -157 | -10 |
| Net cash used in investing activities | 135 | -1210 | -164 | -148 | 3 |
| Net cash from/(used in) financing activities | -407 | 530 | -475 | -586 | -589 |
| Net increase/(decrease) in cash | 174 | -136 | -9 | -83 | 85 |
| Cash and cash equivalent at 1 January | 251 | 425 | 290 | 280 | 198 |
| Cash and cash equivalent at 1 December | 425 | 290 | 280 | 198 | 283 |
Profitability Margin
| 2023A | 2024A | 2025E | 2026F | 2027F | |
|---|---|---|---|---|---|
| Profitability Margins | 73.6% | 97.3% | 77.3% | 77.1% | 76.9% |
| Net Investment Income margin | 47.3% | 45.8% | 47.7% | 48.8% | 50.7% |
| Core net income margin | 6.6% | 6.8% | 7.2% | 7.4% | 7.8% |
| ROE | 3.6% | 3.5% | 3.5% | 3.7% | 3.9% |
