Current Price S$0.92
Fair Value S$1.03
Dividend yield still attractive despite Yen weakness
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. Maintain Overweight.
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.
Outlook remains positive. Japan’s economic fundamentals remain healthy as seen in the activity of the J-REIT market with cap rates continuing to see compression especially in the office segment. A record JPY 1 trillion was raised by J-REITS in 2013. Although office spaces are leading the growth, we expect other property segments such as retail and residential to follow step, albeit at a slower pace and more strongly in certain geographical locations such at Tokyo.
Impact from consumption tax increase from 5% to 8%. Japan’s economy will be facing headwinds from the impact of the consumption tax, to take effect in April-2014. The hike in tax is expected to slow down consumption and thus affect growth in the second half of 2014. Our view isthat there should not be a major impact to the group’s operations as the bold fiscal and monetary policies by the Japanese government will offset the impact of the tax increase. Core CPI is slowly rising from an average monthly decrease of 0.6% from 2009 to 2012 to above 1% as at end 2013.
Gross revenue improved 5.2% yoy to JPY989m and net property income increased 3.3% yoy to JP689m due to the acquisition of 5 properties from Nov-2012 to Jun-2013, offset by divestment of a property in March 2013.
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.
Publish date: 17/02/14