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Maybank IB Research

PP16832/01/2012 (029059)

Results Review

2 November 2011

Sunway REIT
Buy (unchanged)
Share price: Target price: RM1.14 RM1.18 (unchanged)

Sequentially stronger
On track. SunREITs RM44.2m 1QFY12 net profit tracked our and market expectations. Longer-term view is positive supported by Sunway Putra Places (SPP) attractive est. 9% property yield. We maintain our earnings forecasts, RM1.18 DCF-based TP and Buy call, the latter premised on a 12-month total return of 10% based on our target price and forecast dividends. 1QFY12 net profit grew 8% QoQ. SunREITs 1QFY12 results accounted for 24-25% of our full-year estimates and consensus. The sequential strength at the core net profit level (+8% QoQ) was driven by positive rental reversions (average +6.1%), better occupancy rates at its hotels (seasonal factors) and lower SPP losses of -RM1.8m in 1QFY12 from RM4.8m in 4QFY11. SunREIT has declared a 1.75 sen gross DPU for 1QFY12 (+16% YoY; 100% payout); in line with our expectations. Improvements at all divisions except for Sunway Carnival, which experienced a -3.8% decline in rental and 4.5-ppt YoY decline in occupancy rate (downsizing by Giant and Ampsquare-Karaoke). However, the malls occupancy rate is expected to return to 89.9% in 2QFY12 with new tenant, Toys R Us. Sunway Pyramid remains the jewel of the trust (55% of NPI) with +16% average rental hike and close to 98% occupancy rate. The rightful owner of SPP. The Court of Appeal and Federal Court have dismissed the appeals filed by Metroplex Holding S/B (previous owner of SPP). With the latest development, SunREIT has gained possession of SPP (incl. hotel) as at end-Sep11. SPP is currently in its planning stage for refurbishment and is expected to commence construction works by Sep12. Significant contributions from the mall will only feature from 2014 onwards. Maintain forecasts. We have incorporated SPP-retail and office buildings into our forecasts and conservatively assume that SPP will be breakeven in 2012-13. SunREIT is confident to keep its FY12 DPU forecast despite SPP-related costs. Some concerns that could arise in the short term include potentially large capex requirements for SPP, its exposure to the over-supplied office market (11% of total NPI) and relatively high foreign shareholding of 19% (excl. GIC).
Sunway REIT Summary Earnings Table
FYE June (RM m) Gross Rental Income EBITDA Recurring Net Profit Recurring Basic EPU (sen) growth (%) EPU DPU (sen) PER EV/EBITDA Gross div yield (%) P/NAV (x) 2010A 316.6 210.5 160.1 6.0 n/a 0.0 19.1 19.1 0.0 1.2 27.7 6.1 4.2 2011A 327.4 221.2 167.3 6.2 4.2 6.6 18.3 20.6 5.8 1.1 35.1 20.0 12.4 2012F 381.2 256.7 180.2 6.7 7.3 7.0 17.1 17.8 6.2 1.1 37.0 6.6 4.0 186.5 Source: Maybank IB 2013F 2014F 395.1 403.3 268.6 273.1 190.5 195.3 7.0 7.2 5.3 2.5 7.4 7.2 16.2 17.1 6.5 1.1 35.9 7.0 4.3 195.4 15.8 16.9 6.3 1.1 35.6 7.2 4.4 213.6

Wong Wei Sum, CFA weisum@maybank-ib.com (603) 2297 8679

Description: The largest REIT in Malaysia with asset portfolio in retail (72% of total revenue), hotel (20%) and office (11%) located in Klang Valley, Ipoh and Penang. The reputable Sunway Pyramid Shopping Mall will remain as the key earnings contributor (55% of total NPI) over the short term. Next catalysts include the newly-acquired Sunway Putra Place (e.9% yield) which will undergo major renovation works in 2013. As at Sep11, SunREIT has RM4.4b in total asset size. Information: Ticker: Shares Issued (m): Market Cap (RM m): 3-mth Avg Daily Volume (m): KLCI: Major Shareholders: Sunway Bhd EPF Skim Amanah Saham Govt of Singapore Price Performance: 52-week High/Low SREIT MK 2,689.3 3,065.8 1.54 1,475.64 % 36.8 9.6 6.2 5.0

RM1.17/RM0.97

1-mth 2.7

3-mth 1.8

6-mth 10.7

1-yr 15.2

YTD 10.7

Price Chart (RM1.14)


1.2 SREIT MK Equity

1.1 1.0 0.9 0.8 0.7 0.6


Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11

Gearing (Debt-toAsset) (%) ROE (%) ROA (%) Consensus Net Profit (RM m)

Description: The largest REIT in Malaysia with asset portfolio in retail (72% of total revenue), hotel (20%) and office (11%) located in Klang Valley, Ipoh and Penang. The

Sunway REIT Table 1: Quarterly summary table


Comment FYE June (RM m) Turnover 1QFY12 95.0 1QFY11 72.4 % YoY 31.2 4QFY11 87.3 % QoQ 8.9 QoQ growth was due to positive rental reversions (except for Sunway Carnival) and better occupancy rates at its hotels (seasonal factors) as well as contributions from Sunway Putra Mall (retail) and Sunway Putra Tower (office).

Net property income (NPI) Other income Interest expense

70.3 (0.1) (19.8)

55.2 0.3 (12.5)

27.2 >-100 58.4

65.0 0.1 (16.6)

8.1 >-100 19.9

Fair value gain Pre-tax profits Tax Net profit -Realised

0.0 43.9 0.0 43.9 44.2

272.3 310.6 0.0 310.6 38.4

>-100 (85.9) NA (85.9) 15.1

113.2 154.1 0.0 154.1 41.1

>-100 (71.5) NA (71.5) 7.7

Gearing ratio remained unchanged at 0.35x as at Sep'11 (average cost of debt:4.67%; 26% fixed rate, 74% floating rate) Revaluation gains from existing assets and Sunway Putra Place in 4QFY11.

Within expectations, accounted for 24-25% of our estimates and consensus. QoQ growth was mainly due to lower losses from Sunway Putra Place of -RM1.8m in 1QFY12, from -RM4.8m in 4QFY11. In line. Distributable income included 50% manager's fee payable in units. Ex-date: 15 Nov 11; payment date: 1 Dec 11

-Unrealised DPU

(0.4) 1.8

272.2 1.5

>-100 15.9

113.0 1.6

>-100 8.0

NPI margin (%) Net profit margin (%)

1QFY12 73.9 46.5

1QFY11 76.2 53.0

+/- ppt (2.3) (6.5)

4QFY11 74.4 47.0

+/- ppt (0.5) (0.5)

QoQ decline was due to higher trust expenses (legal expenses) and finance costs incurred in the purchase of Putra Place.

Sources: Company, Maybank-IB

2 November 2011 Page 2 of 4

Sunway REIT

INCOME STATEMENT (RM m) FY June Gross Rental Income Interest Income Gross Income Property Operating Expenses Non-Property Expenses Net Trust Income Revaluation of Investment Properties Income before taxation Distribution To Unitholders Taxation Income after taxation Income after taxation (exrevaluation) Payout Ratio Distribution per Unit (sen) 2011A 327.4 327.4 (83.4) (78.0) 166.1 385.6 551.6 (177.2) 374.4 167.3 100.0 6.6 2012F 381.2 3.1 384.3 (98.5) (105.6) 180.2 180.2 (190.1) (9.9) 180.2 100.0 7.0 2013F 395.1 2.2 397.4 (100.4) (106.5) 190.5 190.5 (200.4) (9.9) 190.5 100.0 7.4 2014F 403.3 0.2 403.5 (103.8) (104.4) 195.3 195.3 (195.4) (0.1) 195.3 95.0 7.2

BALANCE SHEET (RM m) FY June Total Assets Non Current Assets Investment Properties Current Assets Cash Receivables Total Liabilities Current Liabilities Short term borrowings Creditors Non Current Liabilities Long term borrowings Other long term liabilities Net Assets Unitholders' Capital Undistributed income Unitholders' Funds Units in issue (million) 2011A 4,452.9 4,379.0 58.6 14.5 1,681.8 59.4 68.4 1,502.0 52.0 2,771.1 2,350.4 420.6 2,771.1 2,686.9 2012F 4,498.1 4,379.0 117.9 1.2 1,771.0 59.4 55.7 1,603.9 52.0 2,727.0 2,360.4 366.6 2,727.0 2,696.9 2013F 4,425.2 4,379.0 45.0 1.2 1,698.0 59.4 57.8 1,528.9 52.0 2,727.2 2,370.4 356.7 2,727.2 2,706.9 2014F 4,409.2 4,379.0 29.0 1.3 1,682.2 59.4 59.0 1,511.9 52.0 2,727.0 2,370.4 356.6 2,727.0 2,706.9

CASH FLOW (RM m) FY June Pretax Profit Net interest receipts/(payments) Revaluation (non-cash item) Working capital change Cash tax paid Cash flow from operations Capex Disposal/(purchase) Others Cash flow from investing Debt raised/(repaid) Equity raised/(repaid) Dividends (paid) Others Cash flow from financing Change in cash 2011A 338.8 72.4 (109.2) 301.9 (3,049.7) (1.9) (3,051.7) 1,579.1 1,409.5 (133.1) (47.2) 2,808.3 58.6 2012F 180.2 76.5 7.7 264.4 3.1 3.1 (180.1) (79.6) (259.7) 7.8 2013F 190.5 78.1 2.0 270.5 (75.0) 2.2 (72.8) (190.4) (80.3) (270.7) (72.9) 2014F 195.3 77.8 1.2 274.3 (75.0) 0.2 (74.8) (195.4) (78.0) (273.5) (73.9)

RATES & RATIOS WACC Risk-free Rate of Return Long Term Cost of Debt Market Risk Beta Target Wd Target We Cost of Equity WACC 4.0 4.7 10.5 0.8 0.3 0.7 8.9 7.6

Source: Company, Maybank IB

2 November 2011 Page 3 of 4

Sunway REIT

Definition of Ratings
Maybank Investment Bank Research uses the following rating system: BUY HOLD SELL Total return is expected to be above 10% in the next 12 months Total return is expected to be between -5% to 10% in the next 12 months Total return is expected to be below -5% in the next 12 months

Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):


Adex = Advertising Expenditure BV = Book Value CAGR = Compounded Annual Growth Rate Capex = Capital Expenditure CY = Calendar Year DCF = Discounted Cashflow DPS = Dividend Per Share EBIT = Earnings Before Interest And Tax EBITDA = EBIT, Depreciation And Amortisation EPS = Earnings Per Share EV = Enterprise Value FCF = Free Cashflow FV = Fair Value FY = Financial Year FYE = Financial Year End MoM = Month-On-Month NAV = Net Asset Value NTA = Net Tangible Asset P = Price P.A. = Per Annum PAT = Profit After Tax PBT = Profit Before Tax PE = Price Earnings PEG = PE Ratio To Growth PER = PE Ratio QoQ = Quarter-On-Quarter ROA = Return On Asset ROE = Return On Equity ROSF = Return On Shareholders Funds WACC = Weighted Average Cost Of Capital YoY = Year-On-Year YTD = Year-To-Date

Disclaimer
This report is for information purposes only and under no circumstances is it to be considered or intended as an offer to sel l or a solicitation of an offer to buy the securities referred to herein. Investors should note that income from such securities, if any, may fluctuate and that each securitys price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report. The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Bhd and consequently no representation is made as to the accuracy or completeness of this report by Maybank Investment Bank Bhd and it should not be relied upon as such. Accordingly, no liability can be accepted for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Maybank Investment Bank Bhd, its affiliates and related companies and their officers, directors, associates, connected parties and/or employees may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and oth er services for or relating to those companies. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice. This report may contain forward looking statements which are often but not always identified by the use of words such as ant icipate, believe, estimate, intend, plan, expect, forecast, predict and project and statements that an event or result may, will, can, should, could or might occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on thes e forwardlooking statements. Maybank Investment Bank Bhd expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrenc e of unanticipated events. This report is prepared for the use of Maybank Investment Bank Bhd's clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of Maybank Investment Bank Bhd and Maybank Investment Bank Bhd accepts no liability whatsoever for the actions of third parties in this respect. This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Published / Printed by

Maybank Investment Bank Berhad (15938-H) (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194 Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888; Fax: (603) 2282 5136 http://www.maybank-ib.com

2 November 2011 Page 4 of 4