TA cuts Sunway REIT earnings forecast, lowers TP to RM1.52

TA cuts Sunway REIT earnings forecast, lowers TP to RM1.52
Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com
Wednesday, 07 August 2013 12:47

KUALA LUMPUR (August 7): TA Securities has cut its earnings forecast for Sunway Real Estate Investment Trust (REIT) and lowered its target price for the stock to RM1.52 from RM1.80 previously.

TA is, however, maintaining its "hold" rating for the REIT.

"We cut our FY14-15 (ending June 30) earnings forecast by 3-4%, after increasing
interest cost (estimates) for FY14-15 due to increase in borrowing, and lowering Sunway Putra Hotel’s occupancy assumption from 65% to 60%," TA wrote in a note.

TA said that Sunway REIT's FY14 earnings will be driven by organic growth from rental reversion and asset-enhancement initiatives.

Sunway REIT has room to take on more debt to grow its business. TA believes that Sunway REIT's healthy financial position, with a gearing ratio of 31%, will offer the REIT flexibility for asset acquisitions.

"Based on Sunway REIT’s internal gearing threshold of about 40%, we estimate that the trust has further debt headroom of about RM1 billion in FY14, which is sufficient to fund the RM500 million capex (capital expenditure) and future acquisition," TA said.

TA has issued the note today after Sunway REIT's announcement of its financial results yesterday.

Sunway REIT’s FY13 realised net profit of RM218.8 million was "within expectations", according to TA.

"A distribution per unit (DPU) of 2.02 sen was declared for this quarter, bringing FY13 full-year DPU to 8.3 sen. This was higher than our projection of eight sen.

"At yesterday's close, this will translate to a dividend yield of 6.2%," said TA.

At 10.59am today, Sunway REIT traded one sen higher at RM1.34. The stock settled at RM1.36 at 12.30pm with some three million shares done.