Friday, August 4, 2017

MMHE : Mounting losses underlie price weakness HOLD

STOCK FOCUS OF THE DAY                         
Sunway REIT : Acquires Sunway Clio Property                                                                     HOLD

Sunway REIT (SREIT) announced the acquisition of Sunway Clio Property (comprising Sunway Clio Hotel, Sunway Pyramid West, 6-storey podium car park and 4-storey basement car park) for a total purchase consideration of RM340mil. The acquisition will be financed via its existing MTN programme. We raise our DPU assumption by 0.1%/1.7% in FY18F/FY19F respectively to take into account the completion of the proposed acquisition by FY18F. DPU impact is limited in FY18F largely due to acquisition fee.

SunCity (a wholly-owned subsidiary of Sunway, and the holding company of the vendor) has also undertaken to pay annually the difference between the net property income, excluding car parks, and the aggregate of RM20.2mil for a period of 4 years after the completion of the proposed acquisition. Based on the acquisition price of RM340mil, the undertaking implies an NPI yield of 6% (excluding car parks rental). We maintain a HOLD recommendation with an unchanged fair value of RM1.84/unit, based on a DCF valuation (terminal growth 1.5%, cost of equity 7.0%, risk- free rate 4.2%). SREIT’s debt-to-asset ratio is expected to increase to 40.6% from 35.4% (3QFY17) after the acquisition, which is still below the 45% debt covenant.

Other :
MMHE : Mounting losses underlie price weakness           HOLD

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