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KGI downgrades Sasseur REIT upon expectations of a slower 2H21

Felicia Tan
Felicia Tan8/19/2021 05:22 PM GMT+08  • 3 min read
KGI downgrades Sasseur REIT upon expectations of a slower 2H21
Despite the downgrade, KGI has upped its target price estimate to 97 cents from 89 cents previously.
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KGI Research analyst Joel Ng has downgraded his call on Sasseur REIT to “neutral” as he expects a slower growth outlook in the 2HFY2021.

See: Sasseur REIT 2Q21 DPU rises 6.7% y-o-y to 1.614 cents and 'Add' Sasseur REIT as it's primed for a stronger 2H21

“We think [the REIT’s] risk-reward profile has become less attractive given Sasseur’s 14% year-to-date (y-t-d) unit price appreciation [which has largely priced in the recovery from the Covid-19 lows],” he writes in an Aug 19 report. “We also turn more cautious of China’s economic growth in 2HFY2021 given the regulatory-induced slowdown and the spread of the delta strain.”

He has, however, upped his target price estimate to 97 cents from 89 cents previously. The new target price is based on a dividend discount model (DDM)-derived valuation that factors in 9% cost of equity and 2.0% terminal growth rate.

Sasseur REIT’s income in the FY2020 has been resilient despite the pandemic, due to a rebound in EMA rental income in the 2HFY2020 and positive fair value adjustment to investment properties.

The pent-up demand has fuelled recovery in the 1HFY2021, notes Ng.

The REIT’s distributable income to unitholders increased by 41.0% y-o-y to $40.1 million largely due to the rebound in EMA rental income as restrictions in China were lifted.

Net asset value (NAV) per unit increased from 91.4 cents to 93.6 cents y-o-y, he adds.

Sasseur REIT has also partnered big brands such as Adidas and Coach, through its top-performing Chongqing Liangjiang Outlet to launch WeChat livestreams, as a means to stay relevant and competitive in the retail industry. Live sales will contribute to tenant sales, which will ultimately boost rental income collected by the REIT.

The programme proved successful with over 90,000 viewerships gained in each of the livestreams held.

“With the successful programme initiation, Sasseur expects to sustain and extend the livestreams to other brands to increase rental income from this win-win situation,” says Ng.

That said, spending sentiments may take a hit in the 2HFY2021 due to the delta variant and the regulatory clampdown that the Chinese government is currently embarking on.

“Latest July data suggests China’s economy is losing steam as authorities closed tourists’ sites, cancel cultural events and flights. July’s 8.5% y-o-y increase in retail sales was the lowest since December 2020, missing expectations of an 11.5% expansion,” says Ng.

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Downside risks to the counter include “higher-than-expected drop in distribution per unit (DPU) if the sponsor is unable to support the 70% fixed income component”.

“A weaker Chinese yuan is another risk factor given that 100% of sales is derived from China’s retail spending. Rise in Covid-19 cases from nearby cities could affect mall operations,” he adds.

Units in Sasseur REIT closed 0.5 cent lower or 0.54% down at 93 cents, translating to an FY2021 P/B of 1.04 times and a dividend yield of 7.2%.

Photo: Albert Chua/The Edge Singapore

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