ESR-LOGOS REIT has started buying back its units on the open market in a bid to signal that its units are undervalued.
On Oct 30, it acquired one million units at about 26.2 cents each. Just a day earlier, it had acquired 3 million units at 25.7 cents each. This brings the total units bought back to 4 million, equivalent to 0.056% of the total unit base. The REIT has the mandate to buy back up 10% of its unit base, or 767.3 million units.
DBS Group Research notes that the REIT is trading at around 0.8x of its NAV of 33.1 cents as at Sept 30 and that its forward yield is around 10%.
“We believe that a share buyback programme can yield several benefits such as an uplift in DPUs and NAVs,” adds DBS, which has a “buy” call and 34 cents target price for the counter.
According to DBS, if the REIT buys the maximum 10% of units, it could lead to an accretion of around 5.4% for its DPU and around 2.4% for its NAV.
“This is a positive development for ESR-LOGOS REIT J91U , especially since acquiring accretive assets has become increasingly challenging. Moreover, we believe this share buyback signifies management’s confidence in its undervaluation and future earnings prospects,” says DBS.
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DBS adds that this “strategic move” by the REIT carries important implications for both itself and its investors.
“The share buyback programme signifies management’s confidence in its value and may be seen as a positive development by investors,” says DBS, adding that ESR-LOGOS REIT is rare among the universe of SGX-listed REITs, with just two other S-REITs having similar buyback programmes: Keppel REIT and Digital Core REIT.
In 1HFY2023 ended June, ESR-LOGOS REIT reported net property income of $140.8 million, up 37% y-o-y from 1HFY2022’s $102.8 million. However, because of an enlarged unit base, DPU for 1HFY2023 was 1.378 cents, down 5.6% y-o-y from 1.46 cents.
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Compressed margins
Investment holding companies owned by Kuok Khoon Hong, chairman and CEO of Wilmar International F34 , were in the market again.
On Oct 31, three entities controlled by Kuok bought a total of 308,700 shares at $3.54 each. This brings his deemed stake to nearly 837.4 million shares. In addition, Kuok holds nearly 3 million shares directly. This brings his total interest in Wilmar to nearly 840.4 million shares, equivalent to 13.46%.
On Oct 30, Kuok had acquired a total of 156,100 shares at $3.50 each. Before Oct 30, Kuok had acquired 249,700 shares at $3.68 each on Sept 22 and 939,900 shares at $3.70 each on Sept 27.
Kuok’s latest acquisitions came days after the company on Oct 26 announced its business update for its 3QFY2023 ended Sept 30 when Wilmar reported earnings of US$313.9 million ($428.47 million), down 59% y-o-y.
Revenue in the same period was down 6.4% y-o-y to US$17.7 billion. This brings Wilmar’s 9MFY2023 earnings down 55.2% y-o-y to US$864.8 million and revenue down 8.7% y-o-y to US$50.2 billion.
Wilmar attributes the lower earnings to compressed refining margins from the tropical oils business, which was in line with industry-wide trends. On the other hand, Wilmar managed to achieve better sugar milling yields and its consumer products business improved too because of better margins and sales volume.
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In its earnings commentary, Wilmar says operating conditions in China were better in 3QFY2023 and will likely remain positive for the rest of the year.
“Sugar merchandising, milling and refining will remain good with higher sugar prices while tropical oils refining margins will continue to normalise after exceptional conditions last year. Barring unforeseen circumstances, we believe results for the rest of the year will be satisfactory,” the company says.
