Sunway Real Estate Invt Trust (SUNREIT) announced a positive outlook driven by its diverse property portfolio and active acquisition strategy with RHB Investment Bank (RHB) in their report on June 24, 2024, maintaining a BUY rating and setting a new DDM-derived target price of RM1.77. RHB projected a 12% upside and approximately 7% FY25F yield, emphasising the potential for growth through retail rental rate boosts and high hotel occupancy rates.
SUNREIT’s medium-term growth was expected to be supported by the ongoing asset enhancement initiatives (AEI) in Sunway Pyramid and Sunway Carnival, alongside high hotel room rates driven by improving occupancy. The company’s gearing stood at 43% post-completion of six hypermarket acquisitions, potentially rising to 44% after acquiring 163 Mall for RM215 million in 2H24.
Management guided for a normalised mid-single digit rental reversion for retail properties, anticipating rental rate boosts post-AEI completion in Sunway Pyramid and Sunway Carnival in 4Q24 and 2Q25. Sunway Carnival’s occupancy rate was expected to recover to over 90% after AEI, with management reporting encouraging operational metrics, including higher footfall and retail sales year-on-year despite a slight drop in footfall at Sunway Pyramid.
SUNREIT planned to actively pursue acquisitions, aiming for an RM14–15 billion asset value target by 2027, up from approximately MYR9.7 billion post-163 Mall acquisition. Future acquisitions, such as an industrial property in Prai, Penang, for RM67 million, were expected to be partially funded through equity due to the inorganic growth target.
Hotel room occupancy rates were likely to trend upwards, driven by increased tourist arrivals and business activities, with room rates expected to remain above pre-pandemic levels. There was no current pressure on hoteliers to lower room rates, reinforcing the positive trend for the hotel segment.
RHB made minor adjustments to FY24F-25F earnings and introduced FY26F earnings of MYR371 million, factoring in a 4% ESG premium based on in-house methodology. Sunway REIT’s growth potential was underpinned by its active acquisition strategy, diverse property portfolio, and strong performance in retail and hotel segments.
Investors were encouraged to consider SUNREIT shares, given SUNREIT’s strong market position, robust acquisition strategy, and potential for future growth, which could drive the stock price up by 12% to the target price of RM1.77.
