REITS

SUNWAY REIT
(SREIT MK EQUITY, SUNW.KL) 10 Feb 2021

MCO2.0 derails recovery; long term outlook still positive

Company report BUY
AmInvestment Bank (Maintained)
www.amequities.com.my
03-2036 2240 Rationale for report: Company results

Investment Highlights
Price RM1.41
Fair Value RM1.64
52-week High/Low RM1.92/RM1.34  We maintain our BUY recommendation on Sunway REIT,
with a lower fair value of RM1.64 (from RM1.94) based on
Key Changes
an unchanged target yield of 5.5% over our revised FY22F
Fair value 
EPS  distributable income.

YE to Dec
*FY20 #FY21F FY22F FY23F
 We cut our FY21F–23F distributable income by 41%, 16%
and 13% to RM257.7mil, RM308.4mil and RM347.2mil
Revenue (RM mil) 556.9 675.3 632.6 707.6 respectively (from RM437mil, RM365.9mil and
Distributable Income (RM mil) 248.4 257.7 308.4 347.2 RM399.0mil) to largely reflect the lower-than-expected
Distributable Income PU (sen) 7.3 7.5 9.0 10.1 rental reversion, as well as the impact of the extended
Distributable Income PU growth (%) -13.3 3.7 19.7 12.6 MCO 2.0 in 1QFY20F, which is likely lead to more rental
Consensus Net Profit (RM mil) - 306.8 298.5 322.8 rebates, followed by a slower recovery. Meanwhile, the
DPS (sen) 6.2 7.0 9.0 10.1 hotel segment continued to experience pressure on the
PE (x) 19.4 18.7 15.7 13.9 occupancy rate.
EV/EBITDA (x) 21.7 20.9 19.6 18.4
Div yield (%) 4.4 5.3 6.4 7.2
 Sunway REIT reported its 6MFY21 revenue and
ROE (%) distributable income of RM203.2mil (-35% YoY) and
5.2 5.4 6.4 7.2
Net debt to total assets (%) RM57.8mil (-61% YoY) respectively, which came in below
39.5 40.1 40.7 41.0
our forecasts and the consensus estimates, at 13% of our
*FYE Jun; #18 months
full-year 18-month forecasts (due to the change of its
Stock and Financial Data
financial year-end) and 19% of the consensus full-year 12-
month estimates (which have yet to be adjusted to the
Shares Outstanding (million) 3,424.8 new financial year-end).
Market Cap (RM mil) 4,829.0
Book Value (RM/share) 1.40  The weaker revenue was mainly due to lower rental
P/BV (x) 1.0 income from the retail and hotel segments with the
ROE (%) 5.4
reinstated CMCO during the quarter, and no income from
Net Gearing (%) 39.5
Sunway Resort Hotel as the hotel was closed for phased
Major Shareholders Sunway Bhd (40.9%) refurbishment works since July 2020. Meanwhile, Sunway
EPF (15.2%) REIT’s 6MFY21 NPI and distributable income dropped by
KWAP (6.2%)
Free Float 37.7
43% and 61% to RM134.1mil and RM57.8mil respectively,
Avg Daily Value (RM mil) 3.2 in line with the lower revenue as mentioned above.

Price performance 3mth 6mth 12mth  The retail segment’s 6MFY21 revenue declined by 37%
YoY to RM134.5mil (from RM212.3mil), while NPI
Absolute (%) 3.7 (8.4) (21.7)
contracted by 48% YoY to RM78.1mil (from RM149.3mil)
Relative (%) (0.4) (8.9) (23.2)
mainly due to rental support for affected tenants and
2.5 2,000
lower carpark income amidst the ongoing nationwide
1,800
RMCO and CMCO in KL and Selangor since 14 October
2.0 1,600
2020.
1,400
1.5 1,200
 Meanwhile, the hotel segment’s 6MFY21 revenue dived by
77% YoY to RM10.7mil (from RM46.2mil), and NPI shrank
1,000
by 82% YoY to RM7.8mil (from RM43.1mil) amidst a surge
1.0 800
in Covid-19 cases nationwide and further restrictions on
600
interstate, district and inbound travel, group and
0.5 400
200
corporate events with the CMCO in KL and Selangor, as
0.0 0
well as the closure of Sunway Resort Hotel for phased
Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 refurbishment of 12–24 months from July 2020.

SREIT MK FBMKLCI Index

Sunway REIT 10 Feb 2021

 Sunway REIT proposed a distribution of 0.77 sen per unit for 2QFY21 compared with 2.45 sen per unit YoY. We lower
our FY21F–23F distribution projection to 7.5 sen (18 months), 9.0 sen and 10.1 sen respectively, from 12.8 sen (18
months), 10.7 sen and 11.7 sen projected previously.

 Sunway REIT’s debt-to-asset ratio has eased slightly to 33% (vs. 38% previously) following its recent private
placement exercise. We take comfort that it remains well below the regulatory threshold of 60% (temporarily raised
from 50% up to 31 December 2022 by the Securities Commission, being a Covid-19 relief measure). As such, Sunway
REIT does have some headroom to gear up for new acquisitions.

 We believe Sunway REIT’s long-term outlook remains positive given its diversified strategic asset portfolio (which
includes retail malls, hotels, offices, university, hospital, etc.) backed by defensive tenants, and the large pipeline of
potential assets for future injection. It is poised to benefit from the growth in Malaysia’s economy post-pandemic.
We like Sunway REIT as a recovery play as well as a yield play, with attractive dividend yields of 5.3% for FY21 and
more than 6% for FY22 and beyond amidst a low interest rate environment that is likely to be prolonged

EXHIBIT 1: EARNINGS SUMMARY

FY 30 Jun (RMmil) 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 QoQ % YoY % 1HFY20 1HFY21 YTD %

Gross rental income 155.8 140.8 104.9 107.4 95.8 -10.9% -38.5% 311.2 203.2 -34.7%
Property operating cost (39.2) (37.3) (86.3) (39.4) (29.8) -24.4% -24.0% (75.5) (69.1) -8.4%
Net property income 116.6 103.5 18.6 68.1 66.0 -3.1% -43.4% 235.7 134.1 -43.1%
Other income 1.8 1.1 1.7 0.0 0.0 -10.0% -98.5% 2.9 0.1 -98.0%
Fair value adjustments 0.0 0.0 0.0 0.0 0.0 n.a. n.a. 0.0 0.0 n.a.
Net interest (30.5) (29.0) (26.6) (24.3) (22.0) -9.1% -27.7% (60.8) (46.3) -23.9%
Other expenses (10.7) (9.9) (8.1) (9.5) (10.5) 11.0% -1.9% (21.7) (20.0) -8.2%
Fair value adjustments 0.0 0.0 0.0 0.0 0.0 n.a. n.a. 0.0 0.0 n.a.
Income before tax 77.2 65.7 (14.4) 34.4 33.5 -2.6% -56.6% 156.0 67.9 -56.5%
Taxation 0.0 0.0 0.9 0.0 0.0 n.a. n.a. 0.0 0.0 n.a.
Income after tax 77.2 65.7 (13.5) 34.4 33.5 -2.6% -56.6% 156.0 67.9 -56.5%
Distribution perpetual holders & adjustments (5.1) (5.0) 35.4 (5.0) (5.0) 0.0% -0.3% (9.7) (10.1) 4.0%
Distributable income 72.1 60.7 21.9 29.4 28.5 -3.1% -60.6% 146.3 57.8 -60.5%

EPU (sen) 2.11 1.77 0.64 0.86 0.83 -3.1% -60.6% 4.27 1.69 -60.5%
DPU (sen) 2.45 0.00 2.38 0.90 0.77 -14.4% -68.6% 4.95 1.67 -66.3%
NAV/unit (RM) 1.49 1.49 1.48 1.48 1.48 0.0% -0.6% 1.49 1.48 -0.6%

NPI margin (% ) 74.9% 73.5% 17.7% 63.4% 68.9% 75.7% 66.0%

Net margin (% ) 46.3% 43.1% 20.9% 27.3% 29.7% 47.0% 28.4%
Source: Company, AmInvestment Bank Bhd

EXHIBIT 2: PB BAND CHART EXHIBIT 3: PE BAND CHART

1.60 30.00

1.40 +1δ
25.00
Avg +1δ
1.20 -1δ Avg
20.00 -1δ
1.00

0.80 15.00

0.60
10.00
0.40

5.00
0.20

0.00 0.00
Jul-16

Jan-17

Jan-20
Oct-16

Apr-17
Jul-17

Jan-18
Oct-17

Apr-18
Jul-18

Jan-19
Oct-18

Apr-19
Jul-19
Oct-19

Apr-20
Jul-20

Jan-21
Oct-20

Jul-16
Oct-16

Apr-17
Jan-17

Jul-17
Oct-17

Apr-18
Jul-18
Oct-18

Apr-19
Jul-19
Oct-19

Apr-20
Jan-18

Jan-19

Jan-20

Jul-20
Oct-20
Jan-21

AmInvestment Bank Bhd 2

Sunway REIT 10 Feb 2021

EXHIBIT 4: FINANCIAL DATA

Income Statement (RMmil, YE 31 FY19 FY20 FY21F FY22F FY23F

Rev enue 580.3 556.9 675.3 632.6 707.6

Net property income (NPI) 439.7 416.8 443.6 473.9 508.8
Operating income (EBIT) 399.0 376.3 397.9 428.7 459.3
Other income & associates 0.0 0.0 0.0 0.0 0.0
Net interest (117.7) (116.4) (120.3) (100.2) (112.1)
Ex ceptional items 0.0 0.0 0.0 0.0 0.0
Pretax profit 281.3 259.9 277.7 328.4 347.2
Tax ation (7.9) 0.9 0.0 0.0 0.0
Minorities/pref div idends 0.0 0.0 0.0 0.0 0.0
Net income 273.3 260.8 277.7 328.4 347.2
Distributable Income 286.5 248.4 257.7 308.4 347.2

Balance Sheet (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

PPE 12.5 12.0 14.6 13.6 15.3

Intangible assets 0.0 0.0 0.0 0.0 0.0
Other long-term assets 8,047.4 8,347.4 8,547.4 8,647.4 8,747.4
Total non-current assets 8,059.9 8,359.4 8,562.0 8,661.1 8,762.7
Cash & equiv alent 67.3 71.9 72.2 72.5 72.5
Inv entories 0.0 0.0 0.0 0.0 0.0
Trade receiv ables 19.4 19.3 23.9 21.8 24.6
Other current assets 11.5 11.5 11.5 11.5 11.5
Total current assets 98.1 102.6 107.6 105.7 108.6
Trade pay ables 3.1 2.9 4.4 3.2 4.0
Short-term borrow ings 3,090.8 2,966.0 3,596.8 3,369.3 3,768.9
Other current liabilities 175.8 168.7 204.4 191.5 214.1
Total current liabilities 3,269.6 3,137.6 3,805.6 3,564.1 3,987.0
Long-term borrow ings 0.0 444.5 (51.7) 272.8 (55.7)
Other long-term liabilities 91.9 88.8 104.5 98.8 108.8
Total long-term liabilities 91.9 533.2 52.8 371.6 53.1
Shareholders’ funds 4,796.6 4,791.2 4,811.2 4,831.1 4,831.1
Minority interests 0.0 0.0 0.0 0.0 0.0
BV/share (RM) 1.40 1.40 1.40 1.41 1.41

Cash Flow (RMmil, YE 30 Jun) FY19 FY20 FY21F FY22F FY23F

Pretax profit 281.3 259.9 277.7 328.4 347.2

Depreciation/Amortisation 0.0 0.0 0.0 0.0 0.0
Net change in w orking capital (167.6) (7.1) 32.5 (11.9) 20.5
Others 268.5 0.0 0.0 0.0 0.0
Cash flow from operations 382.2 252.8 310.2 316.5 367.7
Capital ex penditure (3.1) (3.0) (3.6) (3.4) (3.8)
Net inv estments & sale of fix ed (550.0) (300.0) (200.0) (100.0) (100.0)
Others (3.1) 0.0 0.0 0.0 0.0
Cash Flow (used in) / from (556.2) (303.0) (203.6) (103.4) (103.8)
Debt raised/(repaid) (1,000.0) 315.1 134.3 96.7 71.2
Equity raised/(repaid) 0.0 0.0 0.0 0.0 0.0
Div idends paid (278.6) (213.6) (257.7) (308.4) (347.2)
Others 1,425.1 (34.2) 17.1 (1.0) 12.2
Cash flow (used in) / from 146.5 67.3 (106.2) (212.8) (263.8)
Net cash flow (27.6) 17.1 0.3 0.3 0.0
Net cash/(debt) b/f 57.6 47.3 71.9 72.2 72.5
Net cash/(debt) c/f 30.0 64.3 72.2 72.5 72.5

Key Ratios (YE30 Jun) FY19 FY20 FY21F FY22F FY23F

Rev enue grow th (%) 3.5 (4.0) 21.3 (6.3) 11.9

NPI margin (%) 75.8 74.8 65.7 74.9 71.9
Pretax margin (%) 48.5 46.7 41.1 51.9 49.1
Net profit margin (%) 47.1 46.8 41.1 51.9 49.1
Interest cov er (x ) 4.0 3.6 3.4 3.2 3.3
Effectiv e tax rate (%) 2.8 0.3 0.0 0.0 0.0
Div idend pay out (%) 103.3 81.9 92.8 93.9 100.0
Receiv able turnov er (day s) 12.2 12.6 12.9 12.6 12.7
Inv entory turnov er (day s) 0.0 0.0 0.0 0.0 0.0
Pay able turnov er (day s) 1.6 1.9 2.0 2.2 1.9

Source: Company, AmInvestment Bank Bhd

AmInvestment Bank Bhd 3

Sunway REIT 10 Feb 2021

Source: Company, AmInvestment Bank Bhd estimates

DISCLOSURE AND DISCLAIMER

This report is prepared for information purposes only and it is issued by AmInvestment Bank Berhad (“AmInvestment”) without
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time of issue. While all reasonable care has been taken to ensure that the stated facts are accurate and views are fair and
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AmInvestment Bank Bhd 4