NRA Capital maintains valuation of Saizen REIT at $1.03
Analyst: Joel Ng
Operational performance in line. Saizens’s 2Q14 net operating income of JPY449m was in line with our JPY445m net operating income.
We maintain our valuation of Saizen at S$1.03 assuming a JPY/S$ exchange rate of 81.
Its yield remains attractive at 6.8% in FY14F and 7.0% in FY15F. Its current PBR of 0.77x is low compared to PBR of 1.1x of listed peers in Japan.
Dividend in line to meet full year forecast despite depreciation of Yen. Saizen declared a distribution of 3.25 Scents per unit for 1H14, a 1.5% decrease yoy due to the depreciation of JPY against the SGD.
This makes up 52% of our full year dividend forecast.
Core operations remain stable. Average occupancy rate decreased to 90.6% in 2Q14 from 91.7% in 2Q13.
The decline was partly due to seasonal factors and management expects occupancy to pick up when the major leasing season begins from February to April.
Rental reversion of new contracts in 2Q14 was slightly lower by 0.5% yoy and qoq mainly for contracts entered more than 7 years ago prior to the financial crisis.
On a positive note, rental reversions were positive for contracts from 2010 onwards.
Room for growth. Saizen’s net gearing of 31% and an unencumbered property portfolio valued at around JPY2.0bn should provide headroom for loans growth and acquisition.
The group is currently in the midst of a strategic review to enhance unitholder’s value.
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UOB KH says entry price for Courts is 52 cents
Analyst: Andrea Isabel Co, CFA
Maintain HOLD with a lower target price of S$0.62 (previously S$0.71), based on 1.2x P/B, which is at a 30% discount to the blended peer average of 1.7x.
We switch our valuation method to P/B from PE and use an equally-weighted average of regional retailers and Malaysian credit companies to better reflect Courts Asia’s (Courts) business model.
We think the P/B discount is justified given its lower ROE of 10% vs peers’ 13%.
The negative outlook on regional consumption and regulatory risks in Malaysia and Singapore may continue to weigh on the stock but share buybacks could lend support to share price.
Entry price: S$0.52
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