SINGAPORE (May 28): Phillip Securities is keeping Dasin Retail Trust at “buy” given DPU would take a slight hit when income support is cut in FY2021 and with all four malls operating at 100% occupancy.
However, Phillip has lowered Dasin Retail Trust’s DPU forecast to factor in higher distribution adjustments for funds set aside for future repayment of interest and related costs of the loan facilities which had not been previously factored in by the research team.
“Maintain ‘buy’ with lower target price of 97 cents,” says Phillip in a report last Friday.
Phillip says FY2022 will be a critical year for Dasin given it will be the first year without income support, which is in the form of a distribution waiver from Dasin’s two biggest shareholders, Aqua Wealth Holdings and Bounty Way Investments.
While income support has always been viewed as a short-term bolster to DPU, Dasin’s income support will be drawn out in the first five years after its 2017 listing to smoothen out the gestation periods of its two growth malls, Dasin E-Colour and Ocean Metro.
“Nonetheless, our forecast – purely based on organic growth and not accounting for any acquisitions or disposals – shows that Dasin’s distributable profit is expected to sustain the removal in income support,” says Phillip.
The number of units entitled to distribution under the waiver will double from 2017 to 2022, the first year without income support. And in order for Dasin to sustain similar distribution yields of 8.5%, it has to correspondingly double its distributable profit.
“Our estimates, which have taken into account a baseline rental CAGR of 6% from FY17 to FY22F, show that Dasin’s distributable profit can in fact double by the same magnitude to cover the shortfall following the drop-off in income support, short of some 6%, which can potentially be compensated for by any acquisitions made within this same time frame,” says Phillip.
In 1Q18 ended March, Dasin saw positive rental reversions with reversions at Xiaolan Metro Mall jumping to 4.5%. This followed the 10-year renewal of the Xiaolan Master Lease Agreement for Superior City Department Store on Sept 26 2017.
See: Dasin Retail Trust declares 23% higher 1Q DPU of 1.83 cents
There was also other adjustments of $2.7 million in 1Q18 which led to DPU underperforming Phillip’s forecast as this item was previously not modelled into the research house’s forecast.
After a visit to Zhongshan, Phillip says Dasin’s inorganic growth will be achieved through its ready pipeline of 20 right-of-first-refusal (ROFR) properties. Thirteen ROFR properties have been completed while seven are under development.
Zhongshan’s purchasing power with urban disposable income per capita grew 8.9% y-o-y in 2017. Another catalyst will be the expected opening of the Hong Kong-Zhuhai-Macau bridge in July which will create some spillover of consumption spending into Zhongshan which could raise rental rates and property valuations for Dasin in the longer term.
As at 12.01pm, units in Dasin are trading at 86 cents giving it a distribution yield of 8.7% for FY19F.
