Sasseur REIT - UOB Kay Hian 2021-03-01: 4Q20 Steady Growth From Normalisation Of Consumption & Strength Of RMB

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SASSEUR REIT (SGX:CRPU)

Sasseur REIT - 4Q20 Steady Growth From Normalisation Of Consumption & Strength Of RMB

• Sasseur REIT is a pure play on China’s rapid recovery from the COVID-19 pandemic, the re-orientation to focus on growing domestic consumption and the strengthening RMB.
• Sasseur REIT's four outlet malls will experience full-blown and full-year impact from the normalisation of domestic consumption in 2021. Yield accretive acquisitions would enhance scale and trading liquidity.
• Sasseur REIT provides 2021 distribution yield of 8.3% and trades at P/NAV of 0.92x. Maintain BUY. Target price: S$1.05.

Sasseur REIT's 4Q20 Results

• Sasseur REIT (SGX:CRPU) reported 4Q20 DPU of 1.935 cents (+18.8% y-o-y), bringing 2020 DPU to 6.545 cents (+0.2% y-o-y). The good results were in line with our expectations. The strong performance is reflected Sasseur REIT’s resilient business model and China’s rapid recovery from the COVID-19 pandemic.

Benefitted from strength of RMB and lower cost of debt.

• The Entrusted Management Agreement (EMA) rental rebounded 4.3% q-o-q but remains 2.1% lower y-o-y. The fixed component expanded at a steady pace of 3% y-o-y. The variable component registered sequential expansion of 13.1% q-o-q but nevertheless contracted 10% q-o-q.
• Sasseur REIT benefitted as the RMB strengthened 5.1% against the Singapore dollar. Interest expense declined 11.6% y-o-y due to early refinancing of S$-denominated loan completed in Sep 20, which lowered the weighted average cost of debt from 4.11% to 3.20% (excluding upfront fees).

Normalisation in domestic consumption.

• The four outlet malls generated tenant sales of RMB1.25b in 4Q20, a significant rebound of 12.2% q-o-q driven by year-end promotions and seasonal events, such as Christmas and the Winter Solstice. In particular, the Hefei and Bishan outlets registered strong growth of 23.6% and 24.1% q-o-q respectively. The Hefei outlet was repositioned with a strong sports theme at Block B (ADIDAS, Nike, Fila and Skechers). The gradual reopening of the indoor zoo post-lockdown also attracted more families to the Hefei outlet.
• Portfolio occupancy was stable at 93.5%. Sasseur REIT’s VIP membership grew 33% to 2.1m.

Asset enhancement for Chongqing outlet.

• The Chongqing outlet has revamped its tenant mix with the addition of 44 new brands to cater to changing consumer preferences. The outlet mall expanded its offerings of trendy ladies fashion and sports apparel. It improved 15,000 sm of floor area through reconfiguration of retail units and floor plates. Operations at the Chongqing and Bishan outlets were also merged to improve cost efficiency and inventory management.

Low gearing and healthy balance sheet.

• Sasseur REIT’s aggregate leverage stood at a healthy 27.9% in 4Q20. The weighted average cost of debt improved from 4.11% to 3.20%. Thus, interest coverage ratio has improved from 5.3x to 7.8x.
• Debt headroom is sizeable at S$554m for leverage limit of 45% and S$823m for leverage limit of 50%, which provides Sasseur REIT with more flexibility to pursue yield-accretive acquisitions.

NAV boosted by strength of RMB.

• Sasseur REIT has recognised loss on fair value of its investment properties of S$15.8m in 2020. NAV/unit increased 2.5% y-o-y to S$0.914 as the RMB strengthened 4.7% y-o-y against the Singapore dollar.

Re-orientation to focus on domestic consumption

• China will prioritise expanding of domestic consumption and achieving breakthrough in core technologies in its 14th 5-year plan (2021-25). The external environment has become more complicated and unpredictable, while trade relations with the US remains frosty. The reorientation towards promotion of domestic demand and consumption will steer the Chinese people to spend domestically, which will benefit Sasseur REIT’s outlet malls.

Affordable branded goods well liked by Chinese consumers.

• The bulk of Sasseur REIT’s customers come from the middle-class which is more price-sensitive. They are drawn to outlet malls, which offer value-for-money branded goods at a fraction of the price of regular retailers. This will accelerate the recovery of tenant sales to pre-COVID-19 levels.

Pursuing yield accretive acquisitions.

• Sponsor Sasseur Group has opened its 13th outlet mall on 7 Nov 20 at Xiamen, Fujian. The 75,000 sm outlet mall has over 300 well-known domestic and international brands. It also added three outlet malls under management to its sponsor pipeline, in Suzhou, Nanjing (second outlet mall) and Shijiazhuang in 4Q20. Thus, the sponsor pipeline has expanded from nine to 12 outlet malls.
• Sasseur REIT’s management expects its first yield accretive acquisition post-IPO to materialise over the next 1-2 years.
• Sasseur REIT was included in the FTSE EPRA Nareit Global Emerging Index since 23 Dec 19.

Sasseur REIT - Valuation

• We have raised our 2021 DPU forecast by 3.7% due to the lower cost of debt.
• Maintain BUY. We raise Sasseur REIT's target price from S$0.99 to S$1.05 based on DDM (required rate of return: 8.5%, terminal growth: 1.5%).
• See Sasseur REIT Share Price; Sasseur REIT Target Price; Sasseur REIT Analyst Reports; Sasseur REIT Dividend History; Sasseur REIT Announcements; Sasseur REIT Latest News.
• Sasseur REIT trades at attractive FY21 distribution yield of 8.3% and P/NAV of 0.92x.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-01

SGX Stock Analyst Report BUY MAINTAIN BUY 1.05 UP 0.990