not vested
Japanese properties to hog the limelight
Distributable income in line with expectation. Saizen’s 1Q15 net income of JPY435.4m was 10% above our expectation, however, after adjusting non-cash items, distributable income of JPY378.9m was fairly in line with our expectation.
Raising fair value. We keep our FY15-17 forecasts relatively unchanged. However, we change our DDM model back to its basic valuation method, we are using a 0.9x FY15 PBR now, we believe this method is conservative and justifies a 10% discount to its book value, given its accumulated JPY13bn loss in net fair value since IPO was mainly due to its assets being hit by the financial crisis in 2008 and 2009.
Nevertheless, this trend has been reversing and its assets have appreciated in the past 3 years. As a result, our fair value has increased from S$1.03 to S$1.07. Though a weakening Japanese Yen remains a concern, this will be mitigated by its stable income and potential appreciation of its assets. Given the potential 20% upside with 6-7% dividend yield projection, maintain Overweight rating.
Japan’s GDP unexpectedly shrank in Q3. Last week, Japan announced that 3Q GDP unexpectedly contracted 0.4% on the quarter, after a 1.9% contraction in the previous quarter. Economists had expected a quarterly rise of 0.5% and a 2.1% annual growth rate. According to Japan’s Economics Minister Amari, the biggest reasons for the drop in GDP may have been inventory adjustments, a decline in consumer confidence, and bad weather.
We believe it is still too early to conclude the end of Abenomics given that steps are needed to reduce any negative impact on consumers from the increase in sales tax from 5% to 8% in April. On the other hand, we believe Japan's output will benefit from the recent sharp decline in the yen.
Japan’s properties are being snapped up by foreign investors. Recently, the Blackstone Group agreed to buy GE Japan Corp.’s residential-property business for more than JPY190bn to expand its apartment holdings in Japan. Last month, Singapore’s GIC put US$1.7bn into Tokyo commercial real estate and City Developments has acquired a JPY30.5bn historical site in Tokyo as it steps up expansion plans overseas.
1Q15 gross revenue remains stable at JPY974m. Net property income margins declined slightly by 1.5% pts to 69.4% as average occupancy rate decreased from 91.2% in 1Q14 to 90.1%.
Healthy balance sheet. Saizen’s net gearing inched up from 30% in 4Q14 to 30.5% mainly due to 2 new loans obtained. Recently, MAS has released the new ruling for REITs, allowing for an increase in gearing level from 38% to between 40% and 45%, these should provide headroom for loans growth and acquisition.
Source: NRA