• 1H23 rental income in SGD terms was within expectations at 47.7% of our estimates (S$62.6m, -1.4% YoY, +8% YoY in RMB), representing a S$0.9m YoY decrease due to the weakening RMB against the S$ by 8.7%, as compared to 1H22.
• Outlet sales in RMB were at 50.9% of our estimations (RMB 2254.1m, +20.5% YoY). The variable component income surged by 20.8% YoY, driven by pent-up consumer demand but offset by depreciation in RMB and higher finance costs.
• The 1H2023 DPU was within expectations at 50.6% (3.322 cents, – 2.6% YoY). SASSR retained 6.7% of distributable income mainly for the repayment of onshore RMB loans.
• We reiterate our BUY recommendation with an unchanged DDM TP of S$0.9. FY23e – FY24e DPU forecasts have been lowered 1.5% – 1% after factoring in a stronger-than- expected depreciation of RMB against SGD.

The Positives

+ 1H23 outlet sales up 20.5% (RMB2.5Bn) and reached all-time high since listing. Performance was better than expected as Q2 is usually muted due to seasonality. Hefei outlet saw a 50.2% surge in sales YoY as Shanghai’s COVID lockdown imposed a negative impact in 1H22. Sales of Chongqing Liangjiang increased 20.3% YoY. The trend is expected to continue and deliver a stronger 2H23 performance since the Mega Anniversary Sales is slated in 3Q and festival sales in 4Q.

+ The portfolio occupancy achieved a record high of 97.2% (+0.6% YoY). Chongqing Liangjiang reached 100% occupancy, while the other 3 outlets remained stable above 95%. SASSR is actively replacing non-performing tenants and introducing new F&B offerings, capitalising on Kunming city’s recovery in F&B sales (+12.3% YoY sales growth) in 1H23. The newly signed tenants, KFC and Erlanggang Chongqing Hotpot, are based 100% on sales turnover. Chongqing Bishan Outlet’s sales growth of 8.2% YoY was disrupted by rebalancing of trade mix. Constraints expected to be resolved in 3Q23.

The Negatives

– Depreciation of RMB and raising offshore interest rate were the main headwinds. Renminbi weakened by 8.7% YoY against Singapore dollar. SASSR has been hedging its revenue for 3-6 months and realised exchange gain of S$1.3m. Additionally, higher finance costs (+0.9% YoY to 5.8%, S$2.7m) due to higher interest rates on the offshore loans also added pressure to the bottom line. Offshore loans accounts for 46.4% of the total borrowing and 77% is hedged in fixed rate. We expect Singapore dollar to stay strong against RMB in 2H23 and offshore loan continues to rise.