Maybank Kim Eng Research 2015-07-23: Ascendas REIT - Concerns Allayed; U/G to HOLD.

Concerns Allayed; U/G to HOLD 

  • 1Q DPU in line. Revenue, NPI, DPU at 25.5%, 26%, 26% of our FY15F. No change to forecasts. 
  • Key concerns tackled. Factory & warehouse occupancy improved. 
  • Upgrade to HOLD from SELL in view of improving metrics. DDM TP still at SGD2.27. Mapletree Industrial Trust still our top pick for industrial reit sector exposure. 

Solid Quarter Allays Concerns 

  • 1QFY16 factory and warehouse occupancy markedly improved. 
  • Revenue was SGD180.5m (+3.9% QoQ, +10.6% YoY), NPI, SGD124.3m (+6% QoQ, +6.9% YoY) and DPU, 3.84cts (+3.5% QoQ, 5.5% YoY). 
  • Growth was primarily led by last FY’s acquisitions HIC, Aperia and The Kendall, improved portfolio occupancy to 88.8% (4Q: 88.7%) and stronger rent reversions of 6.6% (4Q: 4.4%). 
  • We were previously wary of declining occupancy for its factories and warehouses which together form 60% of its NPI. 
  • Instead, these categories fared well. Light industrial occupancy improved to 94.1% (4Q: 92.5%), hi-spec held steady at 88.3% (4Q: 88.5%) while logistics improved to 88.8% (4Q: 85.8%). 
  • The improvements were at odds with Singapore’s depressed industrial production and non-oil exports. But Areit released data that showed a new source of demand: electronics. 
  • Singapore electronics NODX data does suggest this sector is turning the corner. 
  • This source has grown from 8% of total new demand last year to 30.5% at present. 

Upgrade to HOLD on Better Metrics 

  • We believe Areit’s recent share-price retreat has priced in our initial concerns over factory and warehouse oversupply, which is at 169% and 213% of annual demand respectively. 
  • Downside to our TP is only 6.5%. 
  • In view of improving operating metrics, we upgrade Areit to HOLD with an unchanged TP of SGD2.27 (DDM, CoE 8.5%, LTG 2%).

(Joshua Tan)

Source: http://www.maybank-ke.com.sg/