Sunway REIT Hits Four-Year High, Analysts Mixed on Upcoming Sunway's Earnings

Sunway REIT's share price rose to a near four-year high, buoyed by strong recent results, and analysts continue to forecast further growth. The REIT's net profit for the first half of 2024, which represents about 45% of consensus estimates, is expected to align with full-year forecasts due to acquisitions and asset enhancements.

With a positive outlook for the retail sector, driven by good rental reversions and customer traffic, and an improving hotel division anticipating more tourists, Sunway REIT is seen favorably by investment analysts. Its diversified portfolio, recent acquisitions like six Giant Hypermarkets, and ongoing asset enhancements contribute to this bullish stance. The majority of research houses recommend a "buy," with a consensus target price suggesting a potential 5% gain. The REIT's performance is underpinned by a substantial increase in net property income and a fair value gain from its recent purchases.

Sunway announced on 2 July that it is selling land measuring 64 acres from its Sunway City Iskandar Puteri (SCIP) township in Johor for data centres (DC) development to Equalbase for sales proceeds of RM380m. The transaction, expected to be completed in about a year, is anticipated to generate a land sale gain of RM213.1 million, significantly contributing to future financial forecasts.

Analysts provide mixed ratings after the announcement of the sale. HLIB Research maintains a Buy rating with an unchanged target price of RM4.30, citing attractive pricing due to the strategic location and well-developed infrastructure, with the land sale gain making up 28.9% of FY25 forecasts. Kenanga Research, while acknowledging a fair deal price and estimating a gain of RM324 million, maintains an Underperform rating but raises the TP by 8% to RM2.66, given the minimal impact on net debt and gearing. MIDF Research downgrades Sunway to NEUTRAL from BUY, keeping the TP unchanged at RM3.98, due to the limited upside following strong share price gains, despite positive earnings prospects and the potential value unlocked from the healthcare division listing.

Sunway reported a notable 21.6% increase in net profit for the first quarter of 2024, attributed largely to its property development and healthcare services. The conglomerate's earnings rose to RM172.23 million, up from RM141.64 million in the same period the previous year. This financial uptick is supported by higher sales and billings from its development projects in Malaysia.Sunway group president Tan Sri Chew Chee Kin said the group's performance for 1QFY2024 was also supported by the encouraging economic growth during the quarter, while the group continues to focus on its core businesses, particularly the healthcare, property development, and construction segments. Meanwhile, Chew also sees that the Johor-Singapore Special Economic Zone (JSSEZ) and the Rapid Transit System Link (RTS Link) project between Johor Bahru and Singapore will augur well for Sunway City Iskandar Puteri. On healthcare, he expects Sunway's three operating hospitals to continue growing, as capacity expansion is on track to cater to the growing demand for quality healthcare services.

HLIB Research highlights Sunway Bhd's promising future anchored by three main growth pillars: healthcare, property development, and construction. The firm's significant exposure to the Malaysian economy suggests that investing in Sunway is akin to owning a piece of the domestic market, which is poised for a new growth phase.

Kenanga Research appreciates Sunway for its strategic land acquisitions, rapid property project turnarounds, growing private healthcare business, and diversified investment assets providing recurring income. Despite these strengths and the trusted Sunway brand, Kenanga maintains an UNDERPERFORM rating due to fair valuations following recent share price increases. Potential risks to their call include strong sector pickups, declining mortgage rates, and improved consumer spending confidence.

MIDF Research maintains its earnings forecast for FY24F/25F/26F, excluding land sales gains from core net income estimates. They see positive earnings prospects driven by projects in Singapore and growth in the healthcare division. However, MIDF downgrades Sunway to NEUTRAL from BUY with an unchanged target price of RM3.98, citing limited upside and significant share price gains year-to-date. They remain optimistic about the property development and healthcare sectors, with the potential listing of the healthcare division unlocking further value.