In this briefing:
- MAJOR: Impressive 4Q18 Earnings
- REIT Discover: The Three R’s Driving Starhill Global REIT (SGREIT SP)
- Sing Holdings – Surge in Full-Year Earnings with a Surprise Hike in Dividend. 67% Upside. BUY.
1. MAJOR: Impressive 4Q18 Earnings
MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
- 4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
- Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
- SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
2. REIT Discover: The Three R’s Driving Starhill Global REIT (SGREIT SP)
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. The spotlight is on Starhill Global REIT (SGREIT)’s unit price under-performance and deep discount to net asset value (NAV) after two years of declining revenues, net property income (NPI) and distribution per unit (DPU). Looking ahead, SGREIT looks poised for a re-rating based on the three R’s – review, recovery, revitalization.
Review – Master leases to Toshin and Katagreen (YTL Group), collectively representing 36% of gross portfolio rent as at 31 December 2018, are due for rent review and lease renewal in June 2019. The 12-year master lease to Toshin covers the retail strata area of Ngee Ann City owned by SGREIT. It provides SGREIT with potential rental upside every three years starting from June 2013. The master lease to Katagreen for its Malaysia properties Starhill Gallery and Lot 10 is due to expire in June 2019. The renewal proposal, which includes an asset enhancement initiative for Starhill Gallery, is being evaluated.
Recovery – 2Q18/19 revenue and NPI jumped 10.6% and 20.2% y-o-y respectively on office portfolio recovery. The committed occupancy for the REIT’s Singapore office portfolio rose to 93.6% as at 31 December 2018 from 89.4% as at 31 December 2017. The committed occupancy for Myer Centre Adelaide has also seen a big improvement. SGREIT’s office portfolio accounts for 13% of gross revenue in 2Q18/19.
Revitalization – Amidst a soft retail climate, SGREIT’s retail portfolio maintained a high average occupancy rate albeit at a softer rent, particularly at Wisma Atria. On 30 January 2019, the Singapore Tourism Board (STB), Urban Redevelopment Authority (URA) and National Parks Board (NParks) unveiled plans to strengthen Orchard Road’s position as a must-visit lifestyle destination. In addition, the impending completion of Thomson-East Coast Line’s (TEL) Orchard MRT Station in 2021 is expected to further transform Orchard Road and thus benefit SGREIT’s Singapore retail portfolio. Future mixed-use development will be built at the new Orchard MRT interchange station, which may provide investment opportunities for the REIT.
As an overview, SGREIT’s S$3.1bn property portfolio comprises 10 mid- to high- end retail properties in Singapore, Malaysia, Australia, China and Japan. The Singapore properties accounted for 69.5% of total asset value and 62% of gross revenue in 2QFY18/19 (financial year-end 30 June) and are made up of interests in two landmark properties in the heart of the Orchard Road shopping belt, Wisma Atria and Ngee Ann City. The REIT strikes a good balance between long and short term leases. Master leases and long-term leases, incorporating periodic rent reviews, represent about 49.4% of gross rent as at 31 December 2018, providing income stability.
Current annualized DPU yield of 6.5% appears attractive for a REIT with a resilient retail and office portfolio in stable and mature markets. We believe the revenue decline in recent years have been priced-in. Potential risks, other than foreign currency exchange-related risks and slower-than-expected recovery in its retail and office portfolio, include challenges in finding yield-accretive acquisitions due to its steep discount to net asset value (0.78x Price/NAV). The lack of scale in certain markets e.g. China and Japan, and strata-ownership of properties could explain SGREIT’s prolonged discount to NAV. Perhaps a portfolio reconstitution may hold the key to narrowing the discount.
3. Sing Holdings – Surge in Full-Year Earnings with a Surprise Hike in Dividend. 67% Upside. BUY.
Sing Holdings (SING SP) announced its FY18 full-year results this evening.
Results were largely in line with expectations.
Take-up rate at Parc Botannia improved from 62% in 3Q FY19 to 66% in 4Q FY19. With the biggest agency in Singapore marketing the project, sales at Parc Botannia is expected to pick up in 2019.
A key surprise in Sing Holdings’ FY18 results was the 20% hike in its dividend to 1.2 S-cents per share in FY18.
My fair value for SHL is pegged at S$0.66 per share, implying an upside potential of 67%. I maintain my BUY recommendation on Sing Holdings Ltd.
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