KUALA LUMPUR: CIMB Equities Research lowered its earnings forecast for Sunway REIT due to slower office space demand outlook for the group and included loss of revenue in the third quarter of FY16 to Q2 of FY17 from the closure of Pyramid Tower East.

It said on Thursday Pyramid Tower East accounted for 4.7% of Sunway REIT’s revenue in 1HFY16 in the first half ended Dec 31, 2015.

CIMB Research retained its Hold call for Sunway REIT as it expects the office and hotel segment to remain soft in 2016. It lowered the target price from RM1.58 to RM1.50.

However, it believes the full earnings contribution from Sunway Putra Mall and positive rental reversions from its other malls will support Sunway REIT’s FY16 earnings performance. 

“Maintain Hold call, with lower DDM-based target price of RM1.50. Estimated dividend yields of 6.4%-6.9% in FY16-18 remain attractive,” it said.

The research house said Sunway REIT’s 2QFY16 core net profit increased 13% on-year to RM71.5mil, in line with a 15.7% on-year increase in revenue to RM131.9mil. 

This brought 1HFY16 core net profit to RM136mil (+7.4% on-year), which was below expectations, accounting for 47% of its full year forecast and 49% of consensus estimates. 

Sunway REIT declared a second interim DPU of 2.57 sen, which brings its cumulative 1HFY16 DPU to 4.69 sen (+3.1% on-year). This was below CIMB Research’s expectation of 9.8 sen. 

“Retail revenue continues to rise Sunway REIT’s 2QFY16 revenue growth was mainly driven by higher contribution from the retail segment thanks to its newly-refurbished Sunway Putra Mall and increased revenue (+24% on-year) from its hotel segment. 

“This was, however, slightly offset by the weaker 2QFY16 revenue from its office segment (-26.5% on-year) due to high vacancy rates for two of its office properties. In spite of the 28% on-year increase in operating expenses, 2QFY16 net property income (NPI) rose 11.8% on-year to RM97mil. 

“Hotel earnings improved, while office earnings were dampened 1HFY16 net profit growth of 7.4% yoy was mainly driven by: 1) revenue increase of +13.5% on-year for its retail segment; 2) improvement in revenue from the hotel division (+23% on-year) across all its hotels (except Sunway Hotel Seberang Jaya) and new contribution from Sunway Hotel Georgetown that offset the 23.9% on-year drop in revenue from the office segment,” it said.


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