• Extension of S$516.7mn loan repayment to 19 December 2021 a small reprieve. Could help halt 32% slide in YTD share price. Refinancing of loans on longer terms required to return confidence to unitholders.
• Strategic partnership with ARA terminated in favour of China-focused Sino-Ocean. Sale and purchase agreement between Mr Zhang and Sino-Ocean’s entity, New Harvest, will allow New Harvest to acquire 70% of the Trustee-Manager. Call option by Mr Zhang to Sino-Ocean could increase Sino-Ocean’s stake from 6.36% to 26%.
• Maintain ACCUMULATE and DDM TP (COE 8.12%) lowered from S$0.82 to S$0.78. FY21e/22e DPUs cut by 14.8%/5%/7% for higher borrowing costs. Current price implies yields of 7.4/8.2%.

What do we think?

Ditching ARA strategic partnership for Sino-Ocean

While ARA is a globally renowned real-estate name, a partnership with China-focused Sino-Ocean does have merits like possible synergies in real estate management. Under a recent sales and purchase agreement, the Chairman and controlling shareholder of the Trustee- Manager and Aqua Wealth with a 53% stake in Dasin will sell 70% of the Trustee-Manager to New Harvest, an affiliate of Sino-Ocean Capital.

Sino-Ocean Capital acquired 49,700,900 units of Dasin on 30 September 2019 via its affiliate, Glory Class Ventures Limited. This represents 6.36% of the trust’s current outstanding units. Aqua Wealth has also granted a call option with a 1-year validity to New Harvest, allowing it to acquire up to 19.54% of Dasin. Exercise of the option would bring Sino-Ocean’s stake to no more than 26% of Dasin’s total outstanding units. The sale of the 70% stake in the Trustee-Manager is expected to be completed in August 2021.

Background of Sino-Ocean Group

Sino-Ocean Capital is a wholly-owned subsidiary of Sino-Ocean Group (3377 HK, Not Rated). Sino-Ocean Group is one of the top 100 property groups in China, backed by two insurance heavyweights, China Life Insurance Company Limited (2628 HK/601628 CH, Not Rated) and Dajia Life Insurance Company Limited (Not Listed). Both hold 29.59% stakes in the group. Sino-Ocean Group is a constituent of the Hang Seng Composite Index, with Baa3 and BBB- ratings assigned by Moody’s and Fitch respectively.

Sino-Ocean Group’s core businesses are residential property development, investment property development and operations, property services and whole industrial chain construction services, real-estate financing, senior living services, logistics properties and Internet data centres.

Outlook

Earlier, loan refinancing might have been hampered by potential changes in the Trustee-Manager’s ownership, which would likely have warranted a reset of Dasin’s credit review process. With Sino-Ocean now holding a 70% interest in the Trustee-Manager and a potentially higher stake in Dasin, Sino-Ocean could support Dasin by extending inter-company loans or a ROFR pipeline. Outlook for Dasin appears more positive, although we await confirmation from key events such as the refinancing of loans maturing on 19 December 2021 and Sino-Ocean’s exercise of share options.

Maintain ACCUMULATE and DDM TP of S$0.82

Maintain ACCUMULATE and DDM TP (COE 8.12%) lowered from S$0.82 to S$0.78. FY21e/22e DPUs cut by 14.8%/5%/7% for higher borrowing costs. Current price implies yields of 7.4/8.2%. Refinancing of loans on longer loan terms would be required to return confidence to unitholders, in our view.

In the sector, we prefer Frasers Centrepiont Trust (FCT SP, Buy, TP S$2.87).

Risks

Borrowings are secured against its properties. As such, if Dasin is unable to refinance or extend its loans, its banks can seize its assets and liquidate them to get back their loans.