DBS Group Research is downgrading its call on Dasin Retail Trust to “hold” from “buy” previously, with a lower target price of 74 cents from 86 cents.

In a March 3 report, according to lead analyst Woon Bing Yong, Dasin is currently trading richly at an FY2021 yield of about 6% which he believes may limit any upside in the near term. This compares to a peer average FY2021 yield of 7.4%.

“Certainly, Dasin is expected to improve operationally in FY2021 boosted by potential savings from rental rebates and better occupancies. Still, the trust’s valuation appears rich with a 6.1% FY2021 yield. Upside may hence be capped in the near term especially if we compare to peers including CapitaLand China Trust and Sasseur REIT which are trading at FY2021 yields of 6.7% and 7.9% respectively,” adds Woon

SEE:PhillipCapital upgrades Dasin Retail Trust to 'buy' on continued recovery in 3Q

Meanwhile, Woon says benefits from the Greater Bay Area (GBA) could take some time to materialise, “Dasin’s asset concentration in the GBA enables the trust to tap on the region’s growth. While we are optimistic on its prospects, growth in GBA may be uneven and take time to spread to Zhongshan and Foshan.”

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On that note, China’s recovery in offline retail sales is a key catalyst for Dasin’s growth. Approximately 20% of Dasin’s leases by gross rental income are based on either turnover rent, or the higher of base rent or turnover rent. As such, a surprisingly large jump in offline retail sales could indicate better rental income for Dasin.

To recap, the trust had a challenging FY2020 ended December, which was clearly seen in its results. Distribution per unit (DPU) for the period dropped by 42.2% y-o-y to 3.94 cents, with amount available for distribution also dipping some 11.6% y-o-y to $20.6 million.

Overall, revenue was 15.1% higher y-o-y at $87.5 million, mainly due to contribution from three newly acquired malls – Doumen Metro Mall, Shunde Metro Mall and Tanbei Metro Mall. But revenue was impacted by lower rental income and rental rebates provided to tenants due to the Covid-19 pandemic.

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FY2020 occupancy remained fairly resilient at 96.5%, inching down from 97.0% in 1HFY2020, but Woon expects portfolio occupancies to improve in FY2021 given the better pandemic situation in China.

“Overall, we are forecasting FY2021 revenue and net property income to grow by 20.0% and 19.2% y-o-y respectively, supported by full-year contributions from Shunde and Tanbei Metro Malls,” says Woon, who also expects NPI to grow by 19.2% y-o-y in FY2021 and DPU to recover 11.4% y-o-y to 4.39 cents.

As at 12.40pm, units in Dasin are trading at 72 cents or 0.5 times FY2021 NAV with a distribution yield of 6.1%.