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Broker's take: UOB Kay Hian initiates coverage on Sasseur Reit with 'buy'; S$0.97 target price

UOB Kay Hian has initiated coverage on Sasseur Reit, with a "buy" recommendation and a target price of S$0.97, citing the real estate investment trust's portfolio, which comprises retail outlet malls located in tier-2 Chinese cities, which are part of a market that has ample room for growth on rising aspirational consumption and middle-income household spending.

Demand for branded products is growing, underpinned by disposable income per capita in China that is projected to grow at a compound annual growth rate (CAGR) of 7.8 per cent and reaching 34,700 yuan (S$6,700) per capita by 2021. Meanwhile, upper middle class households in China are expected to expand at a 10-year CAGR of 18.3 per cent and account for 54 per cent of urban households by 2022.

As it stands, UOB Kay Hian analysts Jonathan Koh and Nicola Ho wrote in a Wednesday report that the current "supply of outlet malls is not able to meet China’s voracious appetite for branded consumer goods", suggesting that the outlet mall segment has much capacity to grow.

Sasseur Reit's lease structure is designed to provide a good balance between stability and growth, the analysts noted.

It comprises of a fixed rent component with a 3 per cent annual rental escalation. This makes up 70 per cent of total rent. The remaining 30 per cent is a variable component that is pegged to tenant sales.  

"The structure provides downside protection while enabling upside potential should the outlet malls perform better than expected," the UOB analysts said.

Unit price catalysts include a robust domestic consumption by middle-income households in tier-2 Chinese cities and the acquisition of the Reit's sponsor’s pipeline properties.

UOB Kay Hian's report is prepared under the Research Talent Development Grant Scheme where the Monetary Authority of Singapore provides co-funding to groom research talent to initiate research coverage of primarily mid-small cap Singapore Exchange listed companies.

Other research houses covering Sasseur Reit include DBS Group Research, CGS-CIMB and Maybank Kim Eng.

As at 1.45pm, Sasseur Reit units were trading down 0.5 Singapore cent or 0.6 per cent at 79.5 cents with about 895,100 million units changing hands.

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