Sunway REIT to feel full impact of Covid-19 in 4Q

KUALA LUMPUR (May 20): After reporting lower earnings in its third quarter, analysts are expecting Sunway Real Estate Investment Trust's (Sunway REIT) fourth quarter to be weaker as it registers a full quarter’s impact from the Covid-19 outbreak as well as extended Movement Control Order (MCO).

This is after the REIT said its net property income fell 9% to RM103.51 million for the third quarter ended March 31, 2020 (3QFY20) from RM113.77 million a year ago on lower revenue, which fell 7.1% as its retail and hotel segments were hit by the Covid-19 pandemic.

“The MCO and Covid-19 impact is likely to be more severe in 4QFY20 given the extended MCO period in April to May. The 3QFY20 operational stats are already showing signs of weakness with the 11%-34% drop in retail and hotel revenue due to lower occupancy rates and cancellation of events/room bookings,” CGS-CIMB wrote in a research note today.

CGS-CIMB maintained its “hold” call on the REIT with an unchanged target price of RM1.48. It projects an FY20 net profit of RM253 million, which implies a 52% quarter-on-quarter decline in core net profit in 4QFY20, it said.

In a separate note, MIDF Research said the REIT’s nine-month period core net income of RM211.5 million was below its expectations at 71% of the full-year forecast but within consensus’ full-year estimates at 77%.

MIDF has cut its earnings forecast for FY20 and FY21 by 9% and 11% respectively, and as such has lowered its target price on the stock to RM1.88 from RM2.02 previously. It maintained its “buy” call on the stock.

“In view of the adverse impact Covid-19 has on Sunway REIT’s retail and hotel segment, we are revising our rental income assumption for the retail segment as well as occupancy rate and average daily rate for the hotel segment,” MIDF said.

On a positive note, however, MIDF said the REIT’s management shared that footfall at its malls has recovered to 40%-50% since the conditional MCO was implemented, as about 90% of the tenants have started to operate again.

“As for the hotel segment, we anticipate a slower recovery as Covid-19 is expected to change global travelling. As social gatherings are prohibited during the MCO, functions and corporate events have been cancelled, resulting in loss of income,” it said.

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