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Results Review 2 November 2011
Maybank IB Research PP16832/01/2012 (029059)
Sequentially stronger
On track. SunREIT’s RM44.2m 1QFY12 net profit tracked our and
market expectations. Longer-term view is positive supported by
Sunway Putra Place’s (SPP) attractive est. 9% property yield. We
maintain our earnings forecasts, RM1.18 DCF-based TP and Buy call,
the latter premised on a 12-month total return of 10% based on our
target price and forecast dividends.
1QFY12 net profit grew 8% QoQ. SunREIT’s 1QFY12 results
accounted for 24-25% of our full-year estimates and consensus. The
sequential strength at the core net profit level (+8% QoQ) was driven
by positive rental reversions (average +6.1%), better occupancy rates
at its hotels (seasonal factors) and lower SPP losses of -RM1.8m in
1QFY12 from RM4.8m in 4QFY11. SunREIT has declared a 1.75 sen
gross DPU for 1QFY12 (+16% YoY; 100% payout); in line with our
expectations.
Improvements at all divisions except for Sunway Carnival, which
experienced a -3.8% decline in rental and 4.5-ppt YoY decline in
occupancy rate (downsizing by Giant and Ampsquare-Karaoke).
However, the mall’s occupancy rate is expected to return to 89.9% in
2QFY12 with new tenant, Toys R Us. Sunway Pyramid remains the
jewel of the trust (55% of NPI) with +16% average rental hike and close
to 98% occupancy rate.
The rightful owner of SPP. The Court of Appeal and Federal Court
have dismissed the appeals filed by Metroplex Holding S/B (previous
owner of SPP). With the latest development, SunREIT has gained
possession of SPP (incl. hotel) as at end-Sep’11. SPP is currently in its
planning stage for refurbishment and is expected to commence
construction works by Sep’12. Significant contributions from the mall
will only feature from 2014 onwards.
Maintain forecasts. We have incorporated SPP-retail and office
buildings into our forecasts and conservatively assume that SPP will be
breakeven in 2012-13. SunREIT is confident to keep its FY12 DPU
forecast despite SPP-related costs. Some concerns that could arise in
the short term include potentially large capex requirements for SPP, its
exposure to the over-supplied office market (11% of total NPI) and
relatively high foreign shareholding of 19% (excl. GIC).
Sunway REIT – Summary Earnings Table Source: Maybank IB
FYE June (RM m) 2010A 2011A 2012F 2013F 2014F Gross Rental Income 316.6 327.4 381.2 395.1 403.3 EBITDA 210.5 221.2 256.7 268.6 273.1 Recurring Net Profit 160.1 167.3 180.2 190.5 195.3
Recurring Basic EPU (sen)
6.0 6.2 6.7 7.0 7.2
EPU growth (%) n/a 4.2 7.3 5.3 2.5 DPU (sen) 0.0 6.6 7.0 7.4 7.2 PER 19.1 18.3 17.1 16.2 15.8 EV/EBITDA 19.1 20.6 17.8 17.1 16.9 Gross div yield (%) 0.0 5.8 6.2 6.5 6.3
P/NAV (x) 1.2 1.1 1.1 1.1 1.1 Gearing (Debt-to-Asset) (%)
27.7 35.1 37.0 35.9 35.6 ROE (%) 6.1 20.0 6.6 7.0 7.2 ROA (%) 4.2 12.4 4.0 4.3 4.4 Consensus Net Profit
(RM m) - - 186.5 195.4 213.6
Sunway REIT
Buy (unchanged)
Share price: RM1.14 Target price: RM1.18 (unchanged)
Wong Wei Sum, CFA weisum@maybank-ib.com (603) 2297 8679
Description: The largest REIT in Malaysia with asset portfolio in retail (72% of total revenue), hotel (20%) and office (11%) located in Klang Valley, Ipoh and Penang. The reputable Sunway Pyramid Shopping Mall will remain as the
key earnings contributor (55% of total NPI) over the short term. Next catalysts include the newly-acquired Sunway Putra
Place (e.9% yield) which will undergo major renovation works in 2013. As at Sep’11, SunREIT has RM4.4b in total asset size.
Information: Ticker: SREIT MK Shares Issued (m): 2,689.3
Market Cap (RM m): 3,065.8 3-mth Avg Daily Volume (m): 1.54 KLCI: 1,475.64
Major Shareholders: % Sunway Bhd 36.8 EPF 9.6 Skim Amanah Saham 6.2
Govt of Singapore 5.0
Price Performance: 52-week High/Low RM1.17/RM0.97
1-mth 3-mth 6-mth 1-yr YTD 2.7 1.8 10.7 15.2 10.7
Price Chart (RM1.14)
0.6
0.7
0.8
0.9
1.0
1.1
1.2
Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11
SREIT MK Equity
Description: The largest REIT in Malaysia with asset portfolio in retail (72% of total revenue), hotel (20%) and office (11%) located in Klang Valley, Ipoh and Penang. The reputable Sunway Pyramid Shopping Mall will remain as the
Sunway REIT
2 November 2011 Page 2 of 4
Table 1: Quarterly summary table
Comment
FYE June (RM m) 1QFY12 1QFY11 % YoY 4QFY11 % QoQ
Turnover 95.0 72.4 31.2 87.3 8.9 QoQ growth was due to positive rental reversions (except for Sunway Carnival) and better occupancy rates at its hotels (seasonal factors)
as well as contributions from Sunway Putra Mall (retail) and Sunway Putra Tower (office).
Net property income (NPI) 70.3 55.2 27.2 65.0 8.1
Other income (0.1) 0.3 >-100 0.1 >-100
Interest expense (19.8) (12.5) 58.4 (16.6) 19.9 Gearing ratio remained unchanged at 0.35x as at
Sep'11 (average cost of debt:4.67%; 26% fixed rate, 74% floating rate)
Fair value gain 0.0 272.3 >-100 113.2 >-100 Revaluation gains from existing assets and
Sunway Putra Place in 4QFY11. Pre-tax profits 43.9 310.6 (85.9) 154.1 (71.5)
Tax 0.0 0.0 NA 0.0 NA
Net profit 43.9 310.6 (85.9) 154.1 (71.5)
-Realised 44.2 38.4 15.1 41.1 7.7 Within expectations, accounted for 24-25% of our
estimates and consensus. QoQ growth was mainly due to lower losses from Sunway Putra Place of -RM1.8m in 1QFY12, from -RM4.8m in
4QFY11. -Unrealised (0.4) 272.2 >-100 113.0 >-100
DPU 1.8 1.5 15.9 1.6 8.0 In line. Distributable income included 50% manager's fee payable in units. Ex-date: 15 Nov
11; payment date: 1 Dec 11
1QFY12 1QFY11 +/- ppt 4QFY11 +/- ppt
NPI margin (%) 73.9 76.2 (2.3) 74.4 (0.5) Net profit margin (%) 46.5 53.0 (6.5) 47.0 (0.5) QoQ decline was due to higher trust expenses
(legal expenses) and finance costs incurred in the purchase of Putra Place.
Sources: Company, Maybank-IB
Sunway REIT
2 November 2011 Page 3 of 4
INCOME STATEMENT (RM m) BALANCE SHEET (RM m)
FY June 2011A 2012F 2013F 2014F FY June 2011A 2012F 2013F 2014F
Gross Rental Income 327.4 381.2 395.1 403.3 Total Assets 4,452.9 4,498.1 4,425.2 4,409.2
Interest Income - 3.1 2.2 0.2 Non Current Assets
Gross Income 327.4 384.3 397.4 403.5 Investment Properties 4,379.0 4,379.0 4,379.0 4,379.0
Property Operating Expenses (83.4) (98.5) (100.4) (103.8) Current Assets
Non-Property Expenses (78.0) (105.6) (106.5) (104.4) Cash 58.6 117.9 45.0 29.0
Net Trust Income 166.1 180.2 190.5 195.3 Receivables 14.5 1.2 1.2 1.3
Revaluation of Investment Properties
385.6 - - - Total Liabilities 1,681.8 1,771.0 1,698.0 1,682.2
Income before taxation 551.6 180.2 190.5 195.3 Current Liabilities
Distribution To Unitholders (177.2) (190.1) (200.4) (195.4) Short term borrowings 59.4 59.4 59.4 59.4
Taxation - - - - Creditors 68.4 55.7 57.8 59.0
Income after taxation 374.4 (9.9) (9.9) (0.1) Non Current Liabilities
Income after taxation (ex-revaluation)
167.3 180.2 190.5 195.3 Long term borrowings 1,502.0 1,603.9 1,528.9 1,511.9
Other long term liabilities 52.0 52.0 52.0 52.0
Payout Ratio 100.0 100.0 100.0 95.0 Net Assets 2,771.1 2,727.0 2,727.2 2,727.0
Distribution per Unit (sen) 6.6 7.0 7.4 7.2 Unitholders' Capital 2,350.4 2,360.4 2,370.4 2,370.4
Undistributed income 420.6 366.6 356.7 356.6
Unitholders' Funds 2,771.1 2,727.0 2,727.2 2,727.0
Units in issue (million) 2,686.9 2,696.9 2,706.9 2,706.9
CASH FLOW (RM m) RATES & RATIOS
FY June 2011A 2012F 2013F 2014F WACC
Pretax Profit 338.8 180.2 190.5 195.3 Risk-free Rate of Return 4.0
Net interest receipts/(payments) 72.4 76.5 78.1 77.8 Long Term Cost of Debt 4.7
Revaluation (non-cash item) - - - - Market Risk 10.5
Working capital change (109.2) 7.7 2.0 1.2 Beta 0.8
Cash tax paid - - - - Target Wd 0.3
Cash flow from operations 301.9 264.4 270.5 274.3 Target We 0.7
Capex (3,049.7) - (75.0) (75.0) Cost of Equity 8.9
Disposal/(purchase) - 3.1 2.2 0.2 WACC 7.6
Others (1.9) - - -
Cash flow from investing (3,051.7) 3.1 (72.8) (74.8)
Debt raised/(repaid) 1,579.1 - - -
Equity raised/(repaid) 1,409.5 - - -
Dividends (paid) (133.1) (180.1) (190.4) (195.4)
Others (47.2) (79.6) (80.3) (78.0)
Cash flow from financing 2,808.3 (259.7) (270.7) (273.5)
Change in cash 58.6 7.8 (72.9) (73.9)
Source: Company, Maybank IB
Sunway REIT
2 November 2011 Page 4 of 4
Definition of Ratings
Maybank Investment Bank Research uses the following rating system:
BUY Total return is expected to be above 10% in the next 12 months
HOLD Total return is expected to be between -5% to 10% in the next 12 months
SELL Total return is expected to be below -5% in the next 12 months
Applicability of Ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
Some common terms abbreviated in this report (where they appear): Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings
BV = Book Value FV = Fair Value PEG = PE Ratio To Growth
CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio
Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter
CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset
DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share
NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds
EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital
EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year
EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date
EV = Enterprise Value PBT = Profit Before Tax
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