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5Q2021: Below expectation

Maintain SELL

15MFY21 core net profit was below estimates, at 77% of our and consensus’ FY21E (FYE Dec; 18 months) forecasts. Nevertheless, we keep our earnings unchanged as we expect improvement in business performance for the 6Q2021 period. We maintain earnings, SELL call and DDM-TP of MYR1.30 (Ke: 8.0%). We prefer Axis (AXRB MK, SP MYR1.90, BUY, MYR2.20 TP).

Partially dragged by retail segment

5Q2021 core net profit was MYR36m (+23% YoY), bringing 15MFY21 core net profit to MYR154.3m. Earnings for 5Q2021 was cushioned by; (i) stable contribution from services and industrial segments, (ii) office – income from newly acquired The Pinnacle Sunway from Nov 2020, (iii) hotel – guaranteed rent from Sunway Putra Hotel, and (iv) lower finance cost (- 17%) – due to lower average interest rate. These, however, were partly offset by its retail segment (NPI: -17% YoY), due to higher rental support to selected tenants. Notably, SunREIT’s malls recorded decent occupancy rates of between 91%-100% in 15MFY21.

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Near term earnings recovery from retail…

Retail malls are expected to gradually recover, due to the easing of movement restrictions and resumption in business operations. Retail footfall is showing encouraging signs, recovering to 60%-80% of pre-Covid levels in Sept and Oct. Rental reversion, however, continues to be negative (estimated single-digit decline YoY).

…but cautious on hotels’ outlook

Meanwhile, hotel segment is expected to remain weak due to international border restrictions, but partially helped by improved outlook on domestic tourism. We anticipate downside earnings risks from Sunway Resort Hotel, Sunway Pyramid Hotel and Sunway Hotel Seberang Jaya due to their new master lease agreements (i.e. without guaranteed rent component) since Jul 2020. Elsewhere, gross gearing was a decent 0.37x (end-Sept 2021), supportive of future asset acquisitions.