Company Update: 20 November 2023
REITail Recovery
- Resilient 3Q23 performance. Despite a 17.7% YoY decline in total distributable income per unit (DPU) to 1.512 Scts, business performance showcased steady resilience in 3Q23. Outlet sales in RMB rose by an impressive 15.9% QoQ, with a consistent 15.8% YoY increase, driven by pent-up demand and supportive local measures.
- Retail market recovery in China. The retail market in China experienced a robust recovery in 3Q23, supported by local authorities’ measures to boost domestic consumption. A notable 18.9% YoY increase in total outlet sales in RMB marked an all-time high since its listing, fuelled by the anniversary sales and consumption-boosting initiatives.
Maintain Outperform
We reiterate an OUTPERFORM rating on Sasseur with an upward revised target price of S$1.05 due to a lower discount rate based on rate cut expectations in 2024. Sasseur’s performance aligns with our expectations, demonstrating resilience against foreign exchange fluctuations. Potential upside catalysts include the acquisition of the Xi’an and Guiyang Outlets.
9M23 financials update: Forex impact and milestones
EMA rental income in RMB terms demonstrated a resilient 7.5% YoY growth, reaching RMB487.9mn. Unfavourable forex movements (RMB weakens against SGD) led to a 1.5% YoY decline in revenue, amounting to S$92.96mn. Despite the forex challenges, distributable income fell by 8.6% YoY to S$62.7mn in 9M23, and 9M23 DPU decreased to 4.834 Scts accordingly. 3Q23 and 9M23 RMB sales grew by respective 15.8% YoY and 18.9% YoY, showing strong outlet businesses. The overall portfolio occupancy reached a record-high of 97.9%. Chongqing Liangjiang Outlet achieved record-breaking sales in 3Q23 and 9M23. Chongqing Bishan Outlet reported a record-high occupancy of 96.3%.
Valuation & Action
We maintain our OUTPERFORM rating and a higher target price of S$1.05 on Sasseur, based on DDM, with an 8.7% cost of equity and a 1.5% terminal growth rate.
Risks
Higher-than-expected drop in DPU if the sponsor is unable to support the 70% fixed income component. A weaker RMB is another risk factor given that 100% of sales are derived from China’s retail spending.
