Demand for retail, offices to retract before bouncing back
KUALA LUMPUR: The retail and office space sectors are among the notable casualties of Covid19 pandemic as people adapt to the new norm of online shopping and working from home that had deteriorated demand and value for both sectors in the short term.
According to the KLCC Stapled Group which consists of units in KLCC REIT stapled together with the ordinary shares of KLCC Property Holdings Bhd (KLCCP), the performance of the office segment is expected to remain stable backed by triple net lease agreements and long term leases.
The group, however, remained cautious on its retail segment as Suria KLCC continues to operate in a challenging environment, taking into consideration changes in consumers behaviour and sentiments upon the li ing of the MCO.
Its hotel segment, Mandarin Hotel Kuala Lumpur which was severely impacted due to the pandemic saw its 2020 firstquarter revenue declined 33 per cent year-on-year (y-o-y), despite doing well in January.
The group anticipated the hotel segment would be adversely impacted for the rest of the year.
The group, the largest selfmanaged stapled security constituted 33 per cent of the market capitalisation of the Malaysian REIT segment.
Meanwhile, IGB REIT, which saw its share price dropped over three per cent in a year, has now gradually regained lost ground up as recent selldown has presented an opportunity for investors to accumulate the REIT, according to analysts.
The real estate investment trust has two malls in its portfolio, namely the Mid Valley Mall and The Gardens Mall, both located in Kuala Lumpur.
In its first-quarter financial result ended March 31, 2020, IGB REIT said it is determined to remain resilient throughout the Covid-19 pandemic and commi ed to long-term value for stakeholders, despite the grim outlook and challenges ahead.
Based on the outlook from these two giant REITs in Malaysia, existing occupancy of office and retail space occupancy would likely be sustained for the long term.
KUALA LUMPUR: Sunway Bhd’s (Sunway) near-term prospects are expected to be affected by measures implemented to curb the Coronavirus Disease 2019 (Covid-19) outbreak but analysts remain confident about its long-term prospects.
According to a report by AmInvestment Bank Bhd’s research arm (AmInvestment), Sunway’s reported first quarter of the financial year 2020 (1QFY20) revenue and net earnings were at RM971.4 million (down 13.5 per cent year-on-year) and RM78.3 million (down 42.6 per cent y-oy) respectively.
It noted that the lower earnings were mainly due to the Movement Control Order (MCO) and Covid-19 pandemic which caused disruption in the overall business, and the adoption of MFRS 15 which resulted in lower recognition of its property development projects in China and Singapore.
“Despite the temporary setbacks, we believe the outlook for Sunway remains positive, premised on its improving unbilled sales of RM3.2 billion, stable income contribution from property investment, a robust outstanding order book of
RM5.4 billion, and strong growth potential in healthcare business,” it opined.
In a separate report, Affin Hwang Investment Bank Bhd’s research team (AffinHwang Capital) noted that Sunway’s profit before tax (PBT) fell 39 per cent y-o-y to RM108 million in 1Q20, mainly due to lower construction (down 48 per cent y-o-y), property investment (down 44 per cent y-o-y) and trading (down 92 per cent y-o-y) earnings, while its healthcare division incurred a loss of RM4.5 million.
As a result, core net profit plunged 40 per cent y-o-y to RM82 million in 1Q20.
“Earnings outlook remains challenging in 2Q20 due to the extension of MCO to June 9 but business activities have gradually resumed,” it said.
Meanwhile,theresearchteam at Hong Leong Investment Bank (HLIB Research) said it expected Sunway’s FY20 to be a challenging year with the hospitality and leisure operations to be likely hit the hardest.
“Nonetheless, Sunway has activated its BCP which incorporated its digital platform to facilitate the operational disruptions of the MCO while several cost saving measures have been carried out including recruitment freezes,” it said.
On the property front, it pointed out that the recent digital campaign which was rolled out towards end-April recorded RM200 million in bookings within a month.
“Furthermore, we gather that several local projects which have go en the necessary approvals have resumed construction works. Sunway is also expected to recognise circa RM160 millionof profit from the handover of its projects in Singapore and China,” it added.
All in, HLIB Research retained its ‘buy’ recommendation on the stock. It explained: “Sunway remains our top pick given its well-integrated property and construction segments.
“Its hidden gem, the healthcare business (with four new hospitals coming on stream over the next three years) has yet to be appreciated as it is embedded within the parent-co.
“These, coupled with the resilient earnings from mature investment properties alongside its growing building materials business and quarry operations, justifies for the rerating of the stock.”