Broker's take: KGI downgrades Accordia Golf Trust to 'hold' on natural disasters, cautious macro outlook

A SERIES of natural disasters, the lack of near-term rerating catalysts and a more cautious macro outlook has led broker KGI Securities to downgrade its recommendation for Accordia Golf Trust (AGT) to "hold" with a revised target price of S$0.61 from S$0.70 previously.

As at 11.36am on Thursday, the stock was trading flat at S$0.49 apiece. The counter has seen a 52-week high of S$0.71 and low of S$0.485, according to Singapore Exchange data.

KGI expects AGT's FY2019 dividend per unit (DPU) to fall to four Singapore cents due to one-off expenses, thereafter recovering to at least 5.2 Singapore cents, which would offer an attractive normalised 10.7 per cent dividend yield.

In what would have been peak golf season in Japan, the country has suffered earthquakes, a heat wave, flooding and the worst typhoon - Typhoon Jebi - to hit in 25 years.

Even the positive trend of increasing revenue per player was not enough to offset the 4.3 percentage points decline in Q2 2019 utilisation rate to 78 per cent, said KGI in a research note on Thursday.

Non-fundamental reasons were also a cause of share price weakness, KGI said, noting that a major shareholder has been selling its shares in the market.

In addition, Goldman Sach's fund, AGT's second-largest shareholder, has been paring its stake over the last two weeks.

"We are neutral on this news as the share sales may possibly be due to a change in investment mandate or fund redemptions, and unless we can confirm the reason, we would prefer not to speculate," KGI said.

However, the bad news has already been priced in, and a recovery seems to be under way, KGI said. AGT is trading at 0.55 times price-to-book, which is -1SD (standard deviation) below its historical average, presenting limited downside risks.

Investors with a longer investment outlook "may wish to keep" AGT in their portfolios as a result, the broker said

AGT acquiring golf courses would be positive news too, as it has the debt headroom to "conservatively acquire 10 golf courses" at an average price of two billion yen (S$24.24 million) each. That would increase its loan-to-value (LTV) ratio by five percentage points to 35 per cent, but boost DPU by 10 per cent, noted KGI.

"This year is a year to forget given the confluence of negative factors. On the bright side, barring further bad weather, we can't think of any other negative news that may derail its operational recovery next year."