Company Update: 21 August 2023
- Steady performance. 1H23 results were rather resilient, with a total distributable income (DI) of 3.3 Sing Cents (Scts) per unit, a decline compared to 1H22. Outlet sales dipped slightly in 2Q23 compared to 1Q23, but sales rebounded in 1H23 compared to 1H22 as pent-up demand lifted half-year results. Robust shopping trend in the first half, boosted by Chinese New Year sales and the reopening of China, which led to a 20.5% YoY increase in total outlet sales in RMB, an all-time high since the REIT’s listing.
- Maintain Outperform. We reiterate our OUTPERFORM rating on Sasseur with an unchanged target price of S$0.95. We believe Sasseur’s performance aligns with our expectations as evident in RMB growth that was offset by foreign exchange fluctuations. Potential upside catalyst could come from its right of first refusal for the Xi’an and Guiyang Outlets from its Sponsors Portfolio.
1H23 financials update: Pent-up demand fuelling recovery.
EMA rental income rose 8.0% YoY in RMB terms, reaching RMB326mn. This growth was largely driven by the 20.8% YoY surge in the variable component of the EMA income. Despite this growth, due to unfavourable forex movements, with a substantial appreciation of SGD against RMB this revenue when translated to SGD, experienced a 1.4% YoY decline to S$62.6mn. DI fell by 2.4% YoY to S$43.9mn in 1H23 primarily due to the forex translation losses and to a lesser extent, higher interest costs.
Stabilizing Iron Ore Prices.
We expect iron ore prices to stabilize around US$110/tonne in 2H23. Despite a slower-than-expected economic recovery in China, anticipated government stimulus is likely to support achieving the 5% GDP growth rate for 2023. This, in turn, would bolster iron ore prices due to increased demand from China, the largest importer of the commodity.
For the savvy shoppers.
Despite the challenges posed by the slowing Chinese economy, the outlet mall industry is expected to perform well in the second half of 2023. This is supported by the sales of Sasseur’s four outlets, which show that consumers are still willing to spend money on quality products, especially if they can get a good deal.
Valuation & Action
We maintain our OUTPERFORM rating and a target price of S$0.95 on Sasseur, based on DDM, with a 9.0% cost of equity and a 2.0% terminal growth rate.
Higher-than-expected drop in DPU if the sponsor is unable to support the 70% fixed income component. A weaker CNH is another risk factor given that 100% of sales are derived from China’s retail spending.