Analysts are fairly positive on Sasseur REIT after the REIT released its results for the 4QFY2023 and FY2023 ended Dec 31, 2023.
That said, while the analysts from DBS Group Research, PhillipCapital and UOB Kay Hian have all kept their “buy” calls, DBS and PhillipCapital have lowered their target prices while UOB Kay Hian has increased its target price.
To DBS analysts Geraldine Wong and Derek Tan, Sasseur REIT’s FY2023 entrusted manager agreement (EMA) income and full-year distribution per unit (DPU) stood slightly below their estimates.
That said, they remain upbeat on the REIT’s outlook as the continued spending wariness in China, based on the country’s Spring Festival spending data in February, holds promise for outlet malls.
Sasseur REIT is the only pure-play China outlet mall REIT in Singapore.
“Its experiential giant malls with value proposition benches well on improving consumer sentiments as China bids farewell to Covid-19,” say Wong and Tan in their Feb 22 report.
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The trend, which has seen Chinese consumers spending less per pax at around 90.5% of its 2019 levels in February and down from 97% of 2019 levels in the same month in 2023 has maintained a “booster” for outlet sales.
“Overall outlet sales in China rose 26% y-o-y in 9MFY2023, while Sasseur REIT surpassed this growth to deliver a 32% y-o-y increase in sales in FY2023,” the analysts note.
“‘Value-for-money’ mindset amongst Chinese consumers, alongside the prioritization of experiences and resumption of domestic travel, will be three continued catalysts for Sasseur REIT’s outlet malls going into FY2024. Double-digit growth in Sasseur REIT’s outlet mall sales can be sustained, albeit at a high base, in FY2023,” they add.
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Despite the positive forecast, the analysts have lowered their target price to $1 from $1.05 after reducing their forward foreign exchange (forex) assumptions as they expect the Singapore dollar to renminbi (or SGD/RMB) to remain high for all the forward years. They have also lowered their cost of debt by 25 basis points (bps) in FY2024 to reflect a peak in FY2023.
In addition, the analysts lowered their distribution per unit (DPU) estimates for the FY2024 and FY2025 to 6.22 cents and 6.59 cents respectively. The new DPUs represent a current yield of 9.1% and 9.7% respectively.
“Our adjustments reflect a more muted topline revenue of $134.8 million (or an assumed 6% y-o-y growth),” they write.
On acquisitions, the REIT manager shared that it is adding Guiyang Mall, a right of first refusal (ROFR) asset to their acquisition radar.
“Guiyang Mall is a smaller-sized outlet mall compared to Xi’an Mall and at a valuation price point more digestible to the REIT. We understand that the asset has attained unencumbered status. We believe Sasseur REIT may look at a full injection of Guiyang Mall or a stake purchase of Xi’an Mall as the REIT’s first acquisition,” say the DBS analysts.
“In our site visit to Xi’an Mall, the mall’s direct metro connectivity alongside a more substantial F&B offering makes for a quality asset that is on par or superior to Sasseur REIT’s existing portfolio titan – the Chongqing Liangjiang Mall,” they add.
PhillipCapital analyst Liu Miaomiao likes Sasseur REIT’s results for its improved outlet sales, healthy operating metric, resilient balance sheet as well as the possibility of an acquisition. However, the depreciation of the RMB remains a negative, which may remain a headwind on the REIT’s DPU.
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Sasseur REIT’s FY2023 rental income, DPU and outlet sales also stood within her expectations.
In FY2024, Liu expects the REIT to post a sales growth of 13% y-o-y driven by its strong value proposition targeting China's growing middle-income population.
However, the strengthening of the Singapore dollar against the RMB is expected to reduce FY2024 revenue by 1.2%, she notes in her Feb 22 report.
To this end, Liu has lowered her target price estimate to 87 cents from 90 cents previously on the back of a fading recovery tailwind and weaker-for-longer exchange rate.
She has also reduced her interest rate assumptions by 0.6% in FY2024 in response to the lower interest rate in China.
Lastly, Liu has also lowered her DPU estimates for FY2024 to FY2025 by 2% to 3% to 6.36 cents to 6.67 cents.
At this point, Sasseur REIT is trading at 9% of its FY2024 forward dividend yield, says Liu.
Like his peers, UOB Kay Hian analyst Jonathan Koh, also sees the REIT benefitting from the downgrade in consumption in China.
“Sasseur’s anniversary sales and year-end promotions in 4QFY2023 were well received as consumers switched to affordable domestic fashion brands and sportwear. It has de-risked after completing its refinancing and has the lowest aggregate leverage of 25.3%,” he writes in his Feb 26 report.
Unlike the rest of the analysts, however, Koh has kept his DPU forecast for FY2024 “relatively unchanged” at 6.5 cents. His target price is also lifted to $1.01 from 99 cents previously based on a dividend discount model where the cost of equity (COE) is 8.25% and terminal growth is at 1.5%.
In his view, the REIT trades at an “attractive” FY2023 distribution yield of 9.4% and P/NAV of 0.84 times.
Units in Sasseur REIT closed 0.5 cents lower or 0.73% down at 69 cents on Feb 26.
