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.
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