SPH REIT - CIMB Research 2015-12-09: Limited catalysts

SPH REIT - CIMB Research 2015-12-09: Limited catalysts SPH REIT SK6U.SI 

SPH REIT - Limited catalysts 

  • FY8/15 earnings aided by better cost management. 
  • Sustainable improvement in NPI margins, with updating of older M&E equipment. 
  • Paragon and Clementi Mall still enjoyed higher shopper footfall. 
  • Positive rental reversions and AEI to boost forward earnings. 
  • Maintain Hold call, with an unchanged DDM-based target price of S$1.07. 

■ FY15 earnings aided by better cost management 

  • SPH REIT’s FY15 NPI rose 3% yoy due to better cost management and a 1% improvement in topline. This was despite the loss of income during Paragon’s fitting-out periods, which were part of its tenancy revitalisation programme. 
  • The trust’s book NAV rose to S$0.95 thanks to revaluation gains from Paragon. 

■ More efficient cost management boosted NPI in FY15 

  • NPI margin rose to 75.9% in FY15 (FY14: 74.5%), thanks to savings in utilities (from lower tariff rates and more efficient consumption by new chillers) and lower maintenance costs, partly offset by higher property taxes and marketing expenses. 
  • We expect the improved margins to be sustained going forward. 

■ Higher footfall at both malls 

  • In terms of operations, Paragon saw a 2% yoy rise in visitor traffic for FY15 but tenant sales dipped by 3.2% yoy. Hence, occupancy costs rose to 19% in FY15. 
  • Meanwhile, the Clementi Mall saw a 3.6% yoy rise in FY15 tenant sales and a corresponding 4.7% rise in shopper traffic, with occupancy costs at 14.6%. Businesses in the latter that continue to do well include the supermarket, F&B and lifestyle sectors. 

■ Positive rental reversion and AEI to boost earnings 

  • We expect SPH REIT to continue enjoying positive rental reversions, with 9.8% and 31.9% of rental income (mainly from Clementi Mall) due to be renewed in FY16 and FY17, respectively. 
  • Current occupancy cost at Clementi Mall is below the 16-18% range of its peers. 
  • In addition to higher rents, decanting 7,000 sqf of space from replacement of Paragon’s air-handling unit will increase leasable area gradually in Sep 2015-Mar 2018 and boost rental income. Gearing remains low at 25.7% at end-FY15. 

■ Maintain Hold rating 

  • Given the limited potential catalysts, we maintain our Hold rating and DDM-based target price of S$1.07. SPH Reit trades at 1x FY15 P/BV and offers investors FY16 DPU yield of 5.8%, in line with its S-REIT peers. 
  • We would revisit the stock once the acquisition of the fully-occupied Seletar Mall is completed.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report HOLD Maintain HOLD 1.07 Same 1.07