VIVA INDUSTRIAL TRUST
T8B.SI
Viva Industrial Trust - DOWNGRADE TO HOLD ON PRICE APPRECIATION
- 2Q DPU at 25.3% of full-year forecast.
- Stock jumped 9.2% since initiation.
- FY16/17 DPU yield of 9.2%.
2Q16 results within expectations
- Viva Industrial Trust’s (VIT) 2Q16 results met our expectations. DPU came in 5.4% lower YoY at 1.750 S cents, making up 25.3% of our full-year forecast at initiation.
- Gross revenue increased 31.3% YoY to S$23.4m and net property income increased 41.0% to S$17.2m, meeting 22.1% and 26.8% of our full-year estimates.
- Revenue increased on the back of additional rental contribution from HFB, 11 Ubi Road 1, and 30 Pioneer Road, as well as additional income from Viva Business Park (VBP).
- Distributable income increased 28.8% YoY to S$15.1m.
Adjust assumptions for VBP and UEBH
- Early results from VBP’s asset enhancement initiative (AEI) appear promising. Committed leases for VBP’s white space reached 68.6% as at 2Q16, with the possibility of a prospective anchor tenant bringing commitment levels to > 90% by year-end.
- With the push-back in targeted completion of AEI for Block 750B from end 3Q to 4Q, we adjust our forecasts for incremental NPI resulting from the VBP AEI: S$2.7m in FY16 (previous forecast: S$3.2m), S$7.4m in FY17 (S$6.5m prev.), and S$7.7m in FY18 (S$6.9m prev.).
- On the other hand, we have moderated our expectations for UEBH, forecasting gross revenue to grow by ~5% to ~6% a year from FY17 to FY20 (as opposed to ~5% to ~8%), pending more data points next year.
Downgrade to HOLD on price appreciation
- Looking ahead, we project VIT’s distributable income to increase by 25.4% in FY16 and 8.4% in FY17.
- DPU is expected to decrease 1.8% to 6.876 S-cents in FY16, before increasing 6.9% to 7.351 S-cents in FY17. Based on yesterday’s closing price of S$0.77, VIT is currently trading at a forward FY16F DPU yield of 8.9% and a FY17F yield of 9.5% according to our forecasts.
- In light of the accommodative low interest rate environment, we decrease our risk-free rate from 3.0% to 2.4% and our dividend discount model (DDM) cost of equity falls to 8.4%. Along with the assumption tweaks above, our fair value increases from S$0.75 to S$0.76.
- The stock has jumped 9.2% since our initiation on 7 Jul. Based on the recent price appreciation, we downgrade to HOLD rating on a higher fair value of S$0.76.
Deborah Ong
OCBC Securities
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http://www.ocbcresearch.com/
2016-07-29
OCBC Securities
SGX Stock
Analyst Report
0.76
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0.75
