Kenanga Research upgrades Sunway REIT to Outperform, raises target price

by **Cals** Thu 01 May 2014, 01:43

Business & Markets 2014

Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com

Wednesday, 30 April 2014 10:14

KUALA LUMPUR (Apr 30): Kenanga Investment Bank Bhd upgraded Sunway REIT to “outperform” from “market perform” at RM1.37 and had raised its target price to RM1.55 from RM1.39, as its third quarter results were above expectations.

The research house said that Sunway’s better than expected results were due to Kenanga’s aggressive cost assumptions for the quarter.

“We have increased FY14E and FY15E earnings forecast by 6% and 13% to RM225 million and RM246 million, respectively after lowering our cost assumptions,” said Kenanga in a note today.

The research house said that the group’s retail segment grew by 4% quarter-on-quarter (q-o-q), driven by positive double digit rental reversions from Sunway Pyramid and Carnival.

“However, the hospitality segment was the main drag due to lower occupancy rates in 3Q14, coming off the higher base arising from festive season in 2Q14, and Sunway Putra Hotel as it has been affected by the mall’s refurbishment,” said the research house.

Kenanga noted that the office occupancy rates and gross rental income (GRI) saw a marginal decline of 1.6% q-o-q, due to the slightly lower occupancy of Sunway Tower and Sunway Putra Tower.

Going forward, the research house said that the management plans to spend a total capex of RM500 million in two years, with RM135 million to be spent in 4Q14 and RM280 million in FY15 mostly for the refurbishment of Sunway Putra Place.

The company expects the refurbishment of the hotel to cost RM460 million, to be completed by 1QCY15.