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'Add' Sasseur REIT as it's primed for a stronger 2H21

Samantha Chiew
Samantha Chiew • 4 min read
'Add' Sasseur REIT as it's primed for a stronger 2H21
'Buy' Sasseur REIT as the shoppers love buying from outlet malls.
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Following Sasseur REIT’s 2QFY2021 ended June results announcement, which saw DPU increase by 6.7% y-o-y to 1.614 cents, analysts are keeping positive on the stock as they believe that it is primed for stronger growth ahead. For the 1HFY2021 period, DPU came in at 3.373 cents, 18.5% higher y-o-y.

See: Sasseur REIT 2Q21 DPU rises 6.7% y-o-y to 1.614 cents

According to Maybank Kim Eng analyst Chua Su Tye, “Sales recovery is gaining traction, with asset enhancement initiatives (AEIs) and tenant remixing efforts set to lift occupancies in 2022.”

Portfolio sales also rose 6.4% y-o-y against lower occupancy, driven by a stronger performance of the Chongqing Liangjiang Outlet, as its sales jumped 18.9% y-o-y to contribute about 53% of overall sales. The asset remains fully occupied, even as portfolio occupancy fell to 92.5% (from 93.5% in 1QFY2021), due to a transitory void at Kunming (from 96.1% to 94.9%), with the exit of a gym operator, and tightened movements in Hefei (with rising Covid-19 cases in nearby Nanjing), which are expected to normalise in late 3QFY2021.

Meanwhile, management has retained 10% of its distributable income in 2QFY2021, to fund AEIs and expansions. Chua expects that these efforts will improve building efficiency at Chongqing Bishan, which should help lift its occupancy (from 80.7% in 2QFY2021) from 2022.

“A shift in demand towards domestic brands, which saw an easing in contribution from fashion, sports and international brands to 59.3% of its portfolio NLA at end 2QFY2021 and 75.1% of revenue contributions (compared to 60.7% and 80.5% respectively in 1QFY2021), is expected to drive higher sales commissions,” adds Chua, who has a “buy” call on the stock with a target price of $1.05.

Overall, Chua likes the stock for its strong balance sheet with a low gearing of 27.8% and $385-825 million debt headroom. Acquisition growth opportunities are backed by its sponsor’s growing portfolio, now at 13 malls with the addition of one in Fuzhou.

Chua notes that Sasseur REIT’s new CEO is eyeing growth from its two ROFR assets in Xi’an and Guiyang which have now stabilised. “With a transaction likely to involve an EFR, we think its strong share price appreciation suggests that a deal may be imminent,” says Chua.

CGS-CIMB Research too is remaining positive as it keeps its “add” call on Sasseur REIT with an increased target price of $1.03 from 95.2 cents previously, as it believes that the long-term uptrend for outlet malls is still intact in China.

Analyst Lock Mun Yee notes that Sasseur REIT’s active sales initiatives and AEIs has helped to boost sales performance and will continue so moving forward. Although portfolio occupancy has dipped, mall sales rose, while VIP membership increased by 5.3% y-o-y to 2.37 million.

Against this backdrop, 2QFY2021 EMA rental income grew 8% y-o-y to $30.2 million, with the variable component making up about 28% of the topline. The REIT also has 4.62% of NLA to be renewed in 2HFY2021 and 20.7% in FY2022.

As part of its strategy to drive sales improvement, SASSR undertook online sales initiatives, such as the soft launch of WeChat Mini App Livestream for Chongqing Liangjiang Outlet Mall in 2QFY2021. It collaborated with brand partners to host livestreaming sessions, garnering more than 90,000 viewership in each of the two-hour livestreams. The group also outlined plans for an AEI at Chongqing Bishan Outlet Mall, to upgrade the property to improve asset yield and occupancy rate.

“When completed by Dec 2021, we believe the more efficient configuration should bolster shopper circulation and boost tenant sales,” says Lock.

“Sasseur REIT is well placed to tap inorganic growth opportunities given its robust balance sheet, with its significant debt headroom of $385 million, assuming an optimal leverage of 40%, in our view,” says Lock, who has also noted that the REIT’s aggregate leverage as at end 2QFY2021 stood at 27.8% and its interest coverage ratio stands at 4.5 times.

“The trust has a ROFR from its sponsor for two properties in Xi’an and Guiyang. As these properties are fairly sizeable (ranging from 144k-194k sq m of gross floor area), we believe any potential acquisition would likely be funded through a combination of debt and equity,” says Lock.

For more stories about where the money flows, click here for our Capital section

As at 11.25am, units in Sasseur REIT are trading at 94 cents or 1.03 times FY2021 book with a dividend yield of 7.02% according to CGS-CIMB’s estimates.

Photo: The Edge Singapore/ Albert Chua

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