Accelerated capital recycling
Accelerated capital recycling to support dividend payout.
The company announced on 13th July that the board has reviewed and approved the dividend policy. We anticipate maiden dividend to be declared after interim results. We expect ESR to gradually build up its
dividend track record and narrow its valuation gap with global peers. Capital recycled in 1H22 has already exceeded the full year level in 2021, and we expect more capital recycling in 2H, such as the potential C-REIT. These should support dividend payouts. Reiterate BUY.
Strong investor appetite towards new economy assets.
Capital recycling in 1H22 was US$1.08bn, higher than FY21’s US$0.86bn. ESR will continue to ride on robust investor appetite towards new economy assets and the rising Asian REIT wave. We expect AUM to grow by mid-teens CAGR to US$224bn by FY24. This is expected to drive a 3-year EBITDA CAGR of 12% in FY22-FY24.
(i) potential interim dividend, and (ii) C-REIT potential, which could provide another vehicle for capital recycling.
We maintain our TP at HK$35.53 based on P/B valuation of its balance sheet assets, 20x forward EV/EBITDA for fund management and 10x forward PE for development business.
Where we differ:
Valuation driven by EBITDA growth and multiple expansion.
The stock is now trading at 15x FY22F EV/EBITDA, representing a 38% discount to global peers. The upcoming dividend payout should help ESR to broaden its investor base, and we believe its valuation will be driven by multiple expansion as it delivers 12% EBITDA CAGR in FY22-FY24F.
Key Risks to Our View:
Faster-than-expected interest rate hikes, slower-than-expected AUM expansion, slower-than-expected property starts/completions, share disposal by major shareholders.