Sasseur REIT (SASSR SP)
Results Update: 19 August 2021
Slower growth outlook in 2H
- Steady performance. FY20’s results were rather resilient, with a total distributable income of 6.5 Sing Cents per unit, flat compared to FY19. Outlet sales dipped in 1Q20 but rebounded in the second-half of the year as pent-up demand from shoppers lifted full-year results. Robust shopping trend spilled over to the first-half of 2021, boosted by Chinese New Year sales and gradual recovery from the pandemic, which led to an 18.5% YoY increase in DPU.
- We expect a slower 2H; downgrade to Neutral. While we raise our TP to S$0.97, we downgrade our rating to Neutral. We believe Sasseur’s 14% YTD unit price appreciation has largely priced in the recovery from the COVID-19 lows. We also turn more cautious of China’s economic growth in 2H2021 given the regulatory-induced slowdown and the spread of the delta strain.
FY2020 resilient despite Covid-19
While EMA rental income declined by 5.2% YoY to S$122.1mn in FY20, distributable income to unitholders increased slightly by 1.0% to S$78.7mn. Despite weaker 1Q20 results where malls were closed for 45 days, resilient full-year results were backed by a rebound in EMA rental income in the second-half of the year and positive fair value adjustment to investment properties of S$25.2mn compared to negative adjustment of S$95mn in FY19.
1H21 financials update: Pent-up demand fuelling recovery
1H21 EMA rental income rose by 14.1% YoY to S$66.1mn, spearheaded by a 47.9% increase in overall outlet sales. Distributable income to unitholders increased by 41.0% to S$40.1mn, largely attributable to the rebound in EMA rental income as restrictions in China were lifted. NAV per unit increased from 91.4 Sing Cents to 93.6 Sing Cents YoY, whereas aggregate leverage remained steady at approximately 27.8%, providing headroom for acquisitions.
New initiative: Online Sales via WeChat
As a means to stay relevant and competitive in the retail industry, Sasseur’s top-performing Chongqing Liangjiang Outlet has partnered with big brands such as Adidas and Coach to launch WeChat livestreams where live-selling is hosted. Live sales from this initiative will contribute to tenant sales which will ultimately boost variable rental income collected by the company. Upon kickstarting the programme in 2Q21, there were more than 90,000 viewerships gained in each of the two hours 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.
Local brands inching towards occupancy share
Fashion continues to be the biggest contributor to revenue of approximately 42% as of 1H21, whereas international brands dipped slightly from 20.6% in FY20 to 18.3% in 1H21.The decline is due to an increase in domestic fashion brands taking over tenant spaces, which in fact benefits Sasseur given that local brands are paying higher commission to the REIT.
Potential speedbump in 2H
We expect spending sentiments to take a hit in the second half of this year due to the delta variant and the regulatory clampdown that the 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% YoY increase in retail sales was the lowest since December 2020, missing expectations of an 11.5% expansion.
Valuation & Action
While we raise our TP of S$0.97, we think risk-reward profile has become less attractive given Sasseur’s 14% YTD unit price appreciation. We thus downgrade to Neutral. Our target price is based on a DDM-derived valuation factoring in 9% cost of equity and 2.0% terminal growth rate.
Risks
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 is derived from China’s retail spending. Rise in Covid-19 cases from nearby cities could affect mall operations.
