U/G to HOLD
18MFP21 core net profit of MYR221.9m came in above our and consensus expectations at 110%/105% respectively, mainly due to stronger-than expected retail segment. Our FY22/23E earnings forecasts are tweaked by +2.8%/2.3% and our new rolled-forward DDM-TP is increased to MYR1.45 (from MYR1.30). We U/G our call to HOLD, with decent FY22E net DPU yield of 5.1%
Growth led by retail segment
6Q2021 core net profit was MYR67.6m (+138% YoY), bringing 18MFP21 core net profit to MYR221.9m. Strong YoY core earnings for 6Q2021 was mainly due to: (i) retail – lower rental support and higher car park income, following encouraging recovery in retail footfall and retail sales, (ii) office higher income from newly acquired The Pinnacle Sunway on 20 Nov 2020, and (iii) lower finance cost (-12%) – due to lower average interest rate. Notably, NPI margin for retail segment showed strongest recovery at 71%.
Overall, core NPI for 6Q2021 jump 57% YoY to MYR103.5m.
Slight adjustment to forecasts
We tweak FY22/23E earnings by 2.8%/2.3% after adjusting for full-year FY21 results. Rental reversion outlook remains muted for FY22, where most retail tenants are transitioning into a recovery stage. Our earnings growth forecasts are based on organic growth from lower rental rebates and asset enhancement initiatives at selected assets, i.e. expansion of Sunway Carnival (350k sf additional new space, scheduled to open in April 2022) and re-opening of Sunway Resort Hotel (from March 2022 onwards).
Expect retail to recover faster than hotel segment
SunREIT’s malls are expected to have a more sustainable recovery, with lower rental rebates and in the absence of Movement Control Order. Meanwhile, only gradual recovery is expected for its hotel segment, given continuing restrictions on international travel. This is, however, partially helped by improved domestic tourism and pick up from corporates events