DBS group research analysts Geraldine Wong and Derek Tan have maintained a “buy” call on Sasseur REIT with an increased target price of $1.10 from 89 cents previously.
They “reiterate [their] ‘buy’ call with a higher discount cash flow (DCF)-based target price of $1.10 after increasing their portfolio tenant sales growth from 3% to 5% and modelling interest rate savings of 120 basis points p.a. In the recent round of refinancing”, they write in a June 13 report.
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The Chinese luxury market grew 48% y-o-y in FY2020 as luxury consumption was brought “onshore”.
Wong and Tan stated that they raised their “growth estimates for Sasseur REIT as one of the best placed REITs to ride on the China luxury market boom”.
“Half of the luxury spending by the Chinese is usually expensed abroad but had been brought onshore last year as international travel is primarily halted for now.”
Wong and Tan’s report states that “tenant sales growth forecast increased from 3% to 5% as we expect spillover effect into the luxury outlet mall market.“
Observing that, “Tenant sales spiked 113% last quarter on a low base, recovering to c.94% of normalised levels and doubling the variant component of rents in 1QFY2021, ahead of expectations.”
The way that Wong and Tan see it, they “forecast tenant sales to recover back to FY2019 levels by the end of this year.”
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However, the DBS analysts note that they are “maintaining conservative tenant sales estimates” as they are “omitting organic and inorganic growth opportunities this year which will pose as further upside to our earnings”.
Additionally, DBS notes possible risks to the views they provided such as the “tightening pandemic measures following a second wave of new Covid-19 infections involving imported cases.”
As at 1.54pm, shares are trading at 1 cent higher or 1.081% up at 93.5 cents, or 1 times P/NAV, according to DBS’s estimates.
