KUALA LUMPUR (Jan 31): CGS-CIMB has raised its target price (TP) for Sunway Real Estate Investment Trust (Sunway REIT) to RM1.66, up 13% from RM1.47 previously, due to a lower cost of equity of 6.8% compared with 8% earlier, as it imputed a lower adjusted beta.
In a note on Tuesday (Jan 31), the research house maintained its "hold" rating on the counter as it expects dividend yields of 5.9% to 6.2% for the financial year ending Dec 31, 2023 (FY2023) to FY2025.
"We raise FY2023-FY2024 [forecast] earnings per share/distribution per share (DPU) by 4.6%-6.8% as we impute stronger revenue for its retail and hotel segments while keeping our net property income (NPI) margin assumption of 76%-77%," wrote analyst Sharizan Rosely.
According to him, Sunway REIT's FY2022 results were in line with expectations, while its full-year DPU of 9.2 sen exceeded CGS-CIMB's estimate of 8.2 sen.
"SunREIT’s (Sunway REIT's) retail segment remained the best performer in FY2022 with a 96% average occupancy rate and positive mid-single-digit rental reversion.
"In FY2022, the retail segment’s revenue grew 58.4% y-o-y (4QFY2022: +26.3% y-o-y, +70% q-o-q), with negligible rental rebates, as reflected in the strong expansion of NPI margin to 72% (FY2021: 56.3%)
"The hotel segment’s performance was driven by improving domestic travel demand and year-end domestic tourist and leisure activities. The group expects the return of foreign tourists to aid in the improvement of hotel occupancy rates in FY2023 (54% as at end-FY2022).
"In FY2022, hotel revenue surged 62% y-o-y while NPI margin improved significantly from 83% in FY2021 to 94%. There were major surprises in the performance of the group’s office, services and industrial segments in FY2022," he wrote.
On Monday, Sunway REIT reported that its NPI for the fourth quarter ended Dec 31, 2022 (4QFY2022) rose 18.8% to RM146.19 million from RM123.1 million a year ago, due to higher revenue and reversal of doubtful debts resulting from improved rental collection in the retail segment.
Quarterly revenue increased by 18.34% to RM186.73 million compared to RM157.8 million. It declared a final income DPU of five sen, amounting to RM171.2 million.
At the time of writing, Sunway REIT was up one sen or 0.63% to RM1.60, giving it a market capitalisation of RM5.48 billion.