Company Coverage
Sunway REIT (SREIT MK): 2Q26: In Line; Sunway Velocity Mall Acquisition Drawing Closer
BUY (Maintained)
Current price:
Target price:
Upside:
RM2.15
RM2.80
30.2%
Analyst
Highlights
- 2Q26 results were within our expectations. A DPU of 6.28 sen was declared for 1H26, implying an annualised distribution yield of 5.7% as of end-Jun 26.
- Retail and hotel revenue saw solid growth of 11%/8% yoy respectively in 2Q26. Looking ahead, management expects mid-single-digit retail
reversion, while hotels in Bandar Sunway benefit from forward group bookings and Formula 1 event at Sepang.
- Maintain BUY with unchanged target price of RM2.80. The potential Sunway Velocity Mall injection, alongside further retail and industrial
acquisitions, should support SREIT’s portfolio expansion towards RM14b- 15b by 2027.
Analysis
- In line. Sunway REIT (SREIT) reported 2Q26 revenue of RM220m (-1% qoq, +4% yoy) and core net profit of RM112m (-2% qoq, +10% yoy). This
brings 1H26 results to RM227m (+10% yoy), accounting for 48% and 50% of our and consensus full year forecasts, in line with our expectations.
- Gross gearing ratio increased to 40.6% as of end-2Q26 (vs 1Q26: 40.2%). Average cost of debt was at 3.62% as of end-2Q26.
- Solid retail segment. Excluding Sunway Carnival Mall and AEON Seri Manjung, retail revenue grew at a solid 5% yoy. Rental reversion came in
at mid-single-digit range, in line with expectation while guidance for 2H26 remains at mid-single-digit. After a stronger seasonality in 1Q26, retail sales still recorded an encouraging 4% yoy growth in 2Q26 (vs 1Q26: +6% yoy). By asset, Sunway Pyramid and Sunway Carnival Mall’s retail revenue grew by a solid 5% yoy and 35% yoy. Separately, Sunway 163’s mall AEI Phase 1 has started since May 26 and is expected to be completed by Dec 26. The rental uplift post-AEI is expected at high single-digit.
- Hotel: Expect a strong yoy growth for 2H26 supported by Formula 1 event at Sepang. 2Q26 hotel revenue and NPI grew by a commendable
8% yoy and 9% yoy, driven by stronger performance across Sunway Resort Hotel, Sunway Lagoon Hotel and Sunway Putra Hotel, supported by international flight connectivity resumption and stronger MICE demand during the quarter. Looking ahead in 2H26, this segment is expected to record positive growth, underpinned by: a) existing forward bookings for leisure and MICE activities, and b) demand surge ahead of the Formula 1 event at Sepang during 2-4 Oct 26.
- Improving office occupancy towards end-26. 2Q26 office revenue (+0.3% yoy) and NPI (-1.2% yoy) were largely stable, with occupancy rate at over 80%. Wisma Sunway remains on track to achieve full occupancy by 4Q26 (vs 86% as of end-2Q26). Looking ahead in 2027, Menara Sunway
has 71% of net lettable area (NLA) due for renewal, with 57% of the tenants under Sunway Group. Management shared that renewal discussions have been healthy, with a targeted low-single-digit reversion.
- Acquisition pipeline remains active. SREIT continues to evaluate both retail and industrial acquisitions from its sponsor and third parties, targeting yields of mid-6% to low-7% in general. Management noted that Sunway Velocity mall has matured and stabilised, following several AEIs by the sponsor to enhance its offerings and expand NLA, and hopes to see further progress in discussions in the coming quarters. For third-party industrial assets, vendor price expectations have risen, and further negotiations are needed to align pricing expectations.
Highlights
- 2Q26 results were within our expectations. A DPU of 6.28 sen was declared for 1H26, implying an annualised distribution yield of 5.7% as of end-Jun 26.
- Retail and hotel revenue saw solid growth of 11%/8% yoy respectively in 2Q26. Looking ahead, management expects mid-single-digit retail
reversion, while hotels in Bandar Sunway benefit from forward group bookings and Formula 1 event at Sepang.
- Maintain BUY with unchanged target price of RM2.80. The potential Sunway Velocity Mall injection, alongside further retail and industrial
acquisitions, should support SREIT’s portfolio expansion towards RM14b- 15b by 2027.
Analysis
- In line. Sunway REIT (SREIT) reported 2Q26 revenue of RM220m (-1% qoq, +4% yoy) and core net profit of RM112m (-2% qoq, +10% yoy). This
brings 1H26 results to RM227m (+10% yoy), accounting for 48% and 50% of our and consensus full year forecasts, in line with our expectations.
- Gross gearing ratio increased to 40.6% as of end-2Q26 (vs 1Q26: 40.2%). Average cost of debt was at 3.62% as of end-2Q26.
- Solid retail segment. Excluding Sunway Carnival Mall and AEON Seri Manjung, retail revenue grew at a solid 5% yoy. Rental reversion came in
at mid-single-digit range, in line with expectation while guidance for 2H26 remains at mid-single-digit. After a stronger seasonality in 1Q26, retail sales still recorded an encouraging 4% yoy growth in 2Q26 (vs 1Q26: +6% yoy). By asset, Sunway Pyramid and Sunway Carnival Mall’s retail revenue grew by a solid 5% yoy and 35% yoy. Separately, Sunway 163’s mall AEI Phase 1 has started since May 26 and is expected to be completed by Dec 26. The rental uplift post-AEI is expected at high single-digit.
- Hotel: Expect a strong yoy growth for 2H26 supported by Formula 1 event at Sepang. 2Q26 hotel revenue and NPI grew by a commendable
8% yoy and 9% yoy, driven by stronger performance across Sunway Resort Hotel, Sunway Lagoon Hotel and Sunway Putra Hotel, supported by international flight connectivity resumption and stronger MICE demand during the quarter. Looking ahead in 2H26, this segment is expected to record positive growth, underpinned by: a) existing forward bookings for leisure and MICE activities, and b) demand surge ahead of the Formula 1 event at Sepang during 2-4 Oct 26.
- Improving office occupancy towards end-26. 2Q26 office revenue (+0.3% yoy) and NPI (-1.2% yoy) were largely stable, with occupancy rate at over 80%. Wisma Sunway remains on track to achieve full occupancy by 4Q26 (vs 86% as of end-2Q26). Looking ahead in 2027, Menara Sunway
has 71% of net lettable area (NLA) due for renewal, with 57% of the tenants under Sunway Group. Management shared that renewal discussions have been healthy, with a targeted low-single-digit reversion.
- Acquisition pipeline remains active. SREIT continues to evaluate both retail and industrial acquisitions from its sponsor and third parties, targeting yields of mid-6% to low-7% in general. Management noted that Sunway Velocity mall has matured and stabilised, following several AEIs by the sponsor to enhance its offerings and expand NLA, and hopes to see further progress in discussions in the coming quarters. For third-party industrial assets, vendor price expectations have risen, and further negotiations are needed to align pricing expectations.
BUY (Maintained)
Current price:
Target price:
Upside:
RM2.15
RM2.80
30.2%
Analyst
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