BUY Call (Deep value with 25% upside over an 8 month horizon)
By Joel
Current Price: $0.75
Target price: $0.93
Upside value 24.6%
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| Relative valuation of Ascendas H Trust (data obtained from SGX Reit Data - ReitData.com) |
Value = [Graham ratio (20%) + DBS valuation (15%) + NAV (50%) + Worse case scenario (15%)]x 1.10 (buyout premium)
Background:
I have observed Ascendas H Trust since its announcement on 23rd December 2015 that it received an unsolicted offer to buyout the reit position. This perk my interest and I began tracking this stock.
The lack of movement above $0.75 range appears to show that one of the offer was probably in that range. I expect additional offer(s) to come in as there appears to be a possible bidding war (helps to be the buyout target - think of F&N buyout in 2012-2013).
Management brought forward independent valuation of properties to evaluate offers - emphasis on the plural form.
Assumption
1. 10% buyout premium is used
2. Upward revaluation of assets to $0.842 (from $0.72) shows significant value and consideration of tabled offer by management (strategic review) will be completed soon
3. Comparison was used with gearing, yield and book value
Background:
I have observed Ascendas H Trust since its announcement on 23rd December 2015 that it received an unsolicted offer to buyout the reit position. This perk my interest and I began tracking this stock.
The lack of movement above $0.75 range appears to show that one of the offer was probably in that range. I expect additional offer(s) to come in as there appears to be a possible bidding war (helps to be the buyout target - think of F&N buyout in 2012-2013).
Reasons I am buying Ascendas H Trust
1. Several buyers have tabled offers (Starwood Capital / Fosun / Gaw Capital / Blackstone)
2. Upside of 25% is 3 times downside of 8%
3. Defensive nature of reit structure being 90% dividend payout and 7.73% trailing yield + Australia tourism continues to pick up
Risks
1. Substantial shareholder - Tong Jinquan sells out at 0.765
2. Australia RevPAR fell 5% year on year (crown jewel)
3. High gearing at 38.2% / All in interest rate 3.4% / 2.3 years to maturity
Addressing risk concerns
- Gearing is lowered given the upward revaluation - gearing should be reduced to around 33%
- Nature of Australian financing loans tend to be higher (interest rate is high in the country)
- Improving tourism and the relatively weaker AUD should help push up RevPAR over time
- Ascendas looking to do refinancing of 2016 loans
Only risk that I cannot pinpoint is the reason why Tong Jinquan sold out. It is possible that he holds the asset for income yielding asset tool, given the privatization nature, he doesn't need it anymore.
As of 31/03/16. The author owns shares in the above mentioned company.
