• 3Q19 NPI and DPU came in within our forecasts.
• The proposed acquisition of Shunde and Tanbei Metro Mall will lift underlying DPU by 4.3%.
• We lower our revenue and DPU forecasts to reflect the weakening RMB and retail outlook and incorporate the acquisition of Doumen (completed 12 September 2019), Shunde and Tanbei (TBC 1Q20) Metro Malls.
• Maintain ACCUMULATE with lower TP of S$0.88 (previously S$0.94).

The Positive

+ Revenue grew 0.3% in SGD terms despite the weakening RMB. Revenue grew on the back of built-in rental escalation as well as higher revenues post-AEI at Shiqi and Xiaolan Metro Mall. 

+ High portfolio occupancy of 98.6% and WALE by GRI of 4.1 years. Dasin’s portfolio is underpinned by assets with high occupancy and long WALE, with high proportions of leases on fixed (13%) and fixed with build-in escalation (66%) ranging 3% to 10% in rental escalation per annum.

The Negative

– Weaker China retail outlook dampened tenant sales. Tenant sales was positive for the preceding two quarters, however in 3Q19 tenant sales came in flat, in line with the weaker China retail market.

What else is new?

Proposed acquisition of Shunde Metro Mall and Tanbei  Metro Mall

Dasin announced the proposed acquisition of Shunde Metro Mall and Tanbei Metro Mall from the Sponsor on 13 November 2019. The acquisition will be pro forma NAV and DPU accretive and increase the portfolio WALE and NPI Yield. The agreed property value of RMB 1,8980.8mn (S$364.3mn) and RMB 55.6mn (S$10.7mn) represents a 25.2% and 25.4% discount to its respective valuations. The proposed acquisitions will increase the AUM by 18.1%, contributing 15.0% of revenue to the enlarged portfolio.

Shunde Metro Mall’s GFA and NLA of 177,276 sqm and 66,678 sqm makes it comparable in size to the larger malls in Dasin’s portfolio (Xiaolan, Ocean and Doumen Metro Malls) and will contribute more significantly to the portfolio. Tanbei Metro Mall, with GFA and NLA of 13,640 sqm and 8,952 sqm respectively, is comparable in size to Dasin E-Colour, and faces little competition from as there is only one mall in the vicinity. Both malls have a long WALE by GRI of 5.2 and 7.7 years respectively.

The proposed acquisition is will likely be c.68% debt funded and will increase Dasin’s gearing from 36.8% to 42.0%. Dasin intends to issue c.120mn (sponsor may subscribe to 44mn units). As this is an interested-party transaction, the acquisition will be subject to a shareholders’ vote at an EGM to be convened. If approved, the transaction is expected to be completed by 1Q20.

Recall that Dasin has a distribution waiver where two of Dasin’s largest shareholders elected to waive their rights to distributions (DPU) until FY22. The distribution waiver is meant to provide short-term DPU support to smooth over the gestation period of the two younger malls in the portfolio, Dasin E-Colour and Ocean Metro Mall. The number of units that will not be entitled to distributions will decline over the years such that the “DPU support” will fall off gradually.

Figure 1 shows our FY19e and FY20e with and without the proposed acquisition. The proposed acquisition of Shunde and Tanbei Metro Mall will improve the DPU and DPU yield (Figure 1) as well as provide better income diversification (Figure2).

Outlook

We remain positive on the inorganic growth prospects for Dasin. There remains a ROFR pipeline of 18 properties spanning four cities – six of which are still under construction. Key risks to our valuation remain the FX volatility and the depreciation of the RMB

Maintain ACCUMULATE with a lower target price of S$0.88.

Our target price of S$0.88 (previously S$0.94) translates to a FY19e/FY20e yield of 8.3%/8.7% and a FY19e P/NAV of 0.62x. Our lower target price was due to adjustments to our revenue forecasts to reflect the weakening RMB and incorporate the acquisition of Doumen (completed 12 September 2019), Shunde and Tanbei (TBC 1Q20) Metro Malls.

Source: Phillip Capital Research - 27 Nov 2019