HLIB likes Sunway REIT for its well-diversified portfolio

KUALA LUMPUR: Sunway Real Estate Investment Trust (Sunway REIT) will put focus on yield accretive assets to further diversify and grow its portfolio as rental reversion has slowed since last year.

Hong Leong Investment Bank (HLIB) said potential injections from sponsors included Pyramid Phase 3 and the Pinnacle, where Sunway REIT had the right of first refusal, was more straight forward compared with the first right to match for Sunway Giza and Sunway Velocity, that were owned by joint-venture vehicle.

However, HLIB said Sunway Putra Mall remained challenging as rebates was given out to some tenants as sales were not commensurate with a healthy footfall.

“However, we still expect a year-on-year growth for Sunway Putra Mall due to low base from the free-rent period back in the first quarter of last year.

“We understand that Parkson will be coming in to be the crowd puller anchor tenant and expect Putra Mall to fare better only in next year, which is usually the case post first cycle of lease term.”

HLIB said Sunway REIT was still guiding a dip in distribution per unit for this financial year due to the cessation of management fees payable in unit and loss of income from Sunway Pyramid Hotel.

“We like Sunway REIT for its well-diversified portfolio in which the prominent assets are located at its unique township, large acquisition pipeline and strong backing from sponsor.” it said.

HLIB has maintained its “hold” call on Sunway REIT, with unchanged target price of RM1.70.

On construction, HLIB is positive on Sunway Construction Group Bhd’s (SunCon) recent job wins as it represented the company’s eight project secured from the Putrajaya Group.

Besides that, SunCon has also secured subcontract works for Sungai Besi-Ulu Kelang Elevated Expressway and Damansara–Shah Alam Elevated Expressway even it did not manage to participate in both highways at the main contractor level.

HLIB said with these two jobs in the bag, SunCon’s year-to-date job wins now total RM900 million, out of RM2 billion targeted.

“We remain more optimistic at RM2.5 billion, justified by the strong momentum witnessed thus far into the year,” it said.

SunCon’s order book currently stands at RM4.9 billion, translating to a healthy cover ratio of 2.7 times on financial year 2016 revenue.

The investment bank has maintained its “buy” call on SunCon, raising its target price to RM2 from RM1.84.