sunreit

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 [email protected] (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

mailto:[email protected]

Sunway REIT

2 November 2011 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


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


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

Disclaimer

This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sel l or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each

security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may

receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

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