Sasseur REIT - UOB Kay Hian 2020-03-10: Staying Vigilant Amid COVID-19 Outbreak

SASSEUR REIT (SGX:CRPU) | SGinvestors.io SASSEUR REIT (SGX:CRPU)

Sasseur REIT - Staying Vigilant Amid COVID-19 Outbreak

  • Sasseur REIT will be re-opening its Kunming outlet mall on 11 Mar 19 as it has obtained approval from local authorities, while its remaining three outlet malls remain temporarily closed as a precautionary measure against the COVID-19 outbreak. In response to these unexpected closures, management has undertaken strategic initiatives to grow online sales through its e-commerce portal.
  • Distribution yield remains attractive at 7.6% even after cutting our 2020F DPU forecast by 13%.
  • Maintain BUY with a lower target price of S$0.92.



WHAT’S NEW


Kunming outlet mall slated for re-opening on 11 March.

  • Sasseur REIT (SGX:CRPU) has obtained approval from authorities in Kunming to re-open its outlet, and will continue to enforce preventive measures such as the frequent sanitising of mall facilities to ensure smooth operations.
  • The recent spread of the COVID-19 virus in China has prompted Sasseur REIT to implement temporary closure of all four of its outlet malls; Chongqing and Bishan have been closed since 26 Jan 20; Hefei and Kunming have been closed since 27 Jan 20. These actions were undertaken to prevent the spread of the coronavirus and aligns with management’s stance on corporate social responsibility towards all stakeholders.
  • Management aims to re-open the remaining three outlets as soon as possible.

Reopening of five of seven sponsor malls.

  • On a positive note, sponsor Sasseur Holdings’ five outlet malls in Guiyang, Nanjing, Changchun, Lanzhou and Xi’an have re-opened as of 9 Mar 20 after obtaining approval from the respective provincial authorities. Management has also indicated that reopening dates for the remaining two outlet malls should be in weeks rather than months as new COVID-19 cases within China have been falling rapidly.
  • A healthy rebound in footfall and sales across all outlets is expected as the widespread work stoppages and corresponding loss of income should drive consumer demand for discounted products.

Exploring AEI opportunities for Chongqing outlet.

  • The Chongqing outlet mall is the portfolio’s most mature asset, having commenced operations since 2008. As such, management believes that this is an opportune time to rejuvenate the outlet and reposition it as an exciting lifestyle and shopping destination for both locals and tourists. If feasible, management intends to begin AEI works as soon as 2H20.


STOCK IMPACT


Launch of e-commerce platform to cushion the impact of COVID-19.

  • Sasseur REIT launched its e-commerce platform to mitigate the impact of lost sales during this period of mall closures. Management is optimistic that given the pent-up demand built up steadily over this lock-down period, customers will be receptive to this alternative sales channel.
  • Going forward, Sasseur REIT will continue to use these web-based platforms such as WeMedia, Wechat and Tik Tok to reach out to shoppers and broadcast attractive offers and discounts.

Staying vigilant amid COVID-19 outbreak.

  • Management highlighted that the Sasseur has “some buffer” in the event of significant rental income dips as cost savings were achieved in previous quarters. During this interim period, the sponsor has also set up a dedicated task force to monitor the ongoing situation and implement various health and hygiene measures, such as the provision of face masks and close monitoring of temperatures of employees as well as the tracking of their travel activities.


4Q19 RESULTS

  • Sasseur REIT reported 4Q19 DPU of 1.629 S cents (-18.5% y-o-y), bringing full-year DPU to 6.533 S cents. The results are in line with expectations with 2019 DPU representing 100.8% of our forecast.

Outlet sales performance maintains momentum.

  • Total outlet sales for the four malls in 4Q19 came in at Rmb1.4b, 3.4% higher y-o-y. Total sales for 4Q19 came in at Rmb673.4m for Chongqing (+5.9% y-o-y), Rmb126.8m for Bishan (-4.1% y-o-y), Rmb337.9m for Hefei (- 0.3% y-o-y) and Rmb236.8m for Kunming (+6.3% y-o-y).

Overall portfolio occupancy remained stable

  • Overall portfolio occupancy remained stable at 96.0% (+0.6ppt q-o-q), demonstrating the positive partnership model between the tenants and entrusted managers of each outlet mall. Occupancy rates for 4Q19 were at 100% for Chongqing (flat q-o-q), 92.5% for Bishan (+0.6ppt q-o-q), 96.3% for Hefei (+1.3ppt q-o-q) and 94.9% for Kunming (+0.01ppt q-o-q). Furthermore, total mall VIP members surged by 93% from end-18 and now exceed 1.58m.

Healthy balance sheet with low gearing.

  • Sasseur REIT’s aggregate leverage stood at a healthy 27.8% (-1.2ppt q-o-q). To mitigate the impact of foreign currency fluctuations and better shield itself against macroeconomic headwinds, Sasseur REIT has hedged more than 50% of its 4Q19 distributable income and will continue to do so in the coming quarters.


EARNINGS REVISION

  • We expect Sasseur REIT’s outlet malls to remain closed in February and March (two months of closure) and to reopen in April. We also expect tenant sales to drop by 20% y-o-y in 2Q20 before normalising in 2H20.
  • Overall, we expect tenant sales to fall 22% in 2020. Thus, we cut our 2020F DPU forecast by 13% to 5.8 S cents.


VALUATION/RECOMMENDATION






Nicola Ho UOB Kay Hian Research | Jonathan KOH CFA UOB Kay Hian | https://research.uobkayhian.com/ 2020-03-10
SGX Stock Analyst Report BUY MAINTAIN BUY 0.92 DOWN 0.970



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