Sasseur REIT - Maybank Kim Eng 2020-02-20: Eyeing A 2H Rebound


Sasseur REIT - Eyeing A 2H Rebound

4Q19 DPU in line, maintain BUY

  • We lowered DPUs by 7-11% after in-line 4Q/FY19, primarily to reflect slower sales in 1Q20 with Sasseur REIT (SGX:CRPU)'s malls’ closures. Near-term demand visibility remains weak even as medium-term growth fundamentals are intact.
  • We expect sales growth to pick-up momentum into the seasonally-stronger 2H and see catalysts from stronger-than-expected 2Q20 portfolio sales and contributions from potential acquisitions, amidst on-going macro-led uncertainties.
  • Sasseur REIT Share Price has pulled back 13% since end-Jan, and now offer 7.5% FY20 div yield on our revised estimates and 26% return to our new DDM-based target price (COE: 10.0%, LTG: 3.0%). Maintain BUY.

Sales growth eased off, occupancy improved

  • Sasseur REIT's Portfolio sales increased 3.4% y-o-y in 4Q19, from +9.4% y-o-y in 3Q19. Sales rose at Chongqing and Kunming by 5.9% and 6.3% y-o-y respectively, while its Bishan sales fell 4.1% y-o-y due to warm weather and lower ad-hoc sales events.
  • Portfolio occupancy improved q-o-q from 95.4% to 96.0%, with better occupancies across all four properties from proactive leasing and tenant management. Fashion, sports and international brands were 56.7% of its overall NLA and 76.5% of revenue contributions as of end-Dec 2019, and we expect this to grow further.

Mall closures, lowering sales growth estimates

  • Sasseur REIT had closed all four malls since 26 Jan 2020 as a precautionary measure due to Covid-19. While management is optimistic that the closure will stay in place for days instead of weeks, we see low demand visibility into 1Q20, a seasonally strong quarter at c.25% of full-year sales, with the bulk of purchases prior to CNY and another sales festival in Mar.
  • We lowered FY20 sales estimates by 10% and believe the impact to sales will be significant only if this closure continues into 2Q20. Its income remains supported by the entrusted management agreements (EMAs) which offer DPU downside protection, as NPIs are 70% fixed on average, and 30% variable rental income, depending on the performance of each mall.

Visible deal pipeline, DPU upside

Chua Su Tye Maybank Kim Eng Research | 2020-02-20
SGX Stock Analyst Report BUY MAINTAIN BUY 0.95 DOWN 1.000