SPRIME: Good Point of Entry, Singha Connection Could Add Further Upside

We initiate coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price*. We derive our target price from a DCF-based valuation using a WACC of 6.9% and no terminal period.

Investment thesis:

• Large tenants across various industries should make occupancy resilient
• Addition of various Singha properties offers upside to our target price
• Downside from COVID-19 shutdown should be limited
• Higher yield on NAV, but lower spread than peers

Interim: Revenue fell by 8% in 2Q20 YoY due to the pandemic shutdown, and rental discounts to help tenants. The increase in net assets from operations grew by 38% YoY.

Risks: Conflict of interest risk due to the largest unitholder and property owners being within the same conglomerate, rising bond yields, falling occupancy rate, and higher-than-expected renovation and overhaul costs.