CapitaLand Mall Trust - DBS Research 2016-09-22: Shining Again

CapitaLand Mall Trust - DBS Vickers 2016-09-22: Shining Again CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Shining Again

  • Near-term price strength will be supported by expectations of delay in rate hike.
  • Further announcements regarding Funan’s future plan were largely in line with our expectations.
  • Upgrade to BUY, TP S$2.25.


Delay in rate hike will drive near-term price strength. 

  • With FED’s decision to delay rate hike from September to possibly the end of the year, we believe S-REITS will enjoy a “relief rally’ in the immediate term. CMT, being a proxy to S-REITs will be a beneficiary. 
  • With a total return of > 12% (5% price upside, supported by 5.2% yield), we upgrade the stock to BUY. 
  • CMT’s yield spread (yield over 10-year T-bond) is currently 90bps higher than its historical mean, suggesting compression opportunities in the near term.


Funan’s redevelopment plans are within our expectations.

  • Further details of Funan 2.0, including a cycle-through mall, two Grade A office towers, and co-living apartment units, were announced early this month and were largely in line with our expectations, highlighted in the scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). 
  • We are supportive of CMT’s decision to undertake the redevelopment to capture the alpha. Apart from a 4-Sct (or 2.0%) incremental impact forecasted on NAV, we applaud the proactive asset management strategy that turns an ageing mall into thought leadership.


Gearing has room to finance AEIs and other developments. 

  • As anticipated, CMT will fund Funan’s redevelopment cost of S$560m entirely by debt, comfortably below the S$800m headroom. 
  • Gearing is expected to increase to 38%, which is still a healthy level in our view. We do not see the need to raise equity in the immediate term.

Valuation

  • We raised our DCF-backed TP to S$2.25 from S$2.23 to account for more apartment units than originally estimated for Funan as well as potential increase in leverage due to Funan’s debt financing requirement. 
  • The stock offers a FY17F DPU yield of 5.3% and a total potential return of > 12%, based on the latest closing price of S$2.10. 
  • Upgrade to BUY.

Key Risks to Our View

  • A rate hike surprise before December. While consensus is still ruling out a hike in November just days before the US election, any surprise move or even alterations in the Fed’s rhetoric may stir ripples in the market. 
  • In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe it will be an opportunity for investors to accumulate the stock on the dip.




Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-09-22
DBS Vickers SGX Stock Analyst Report BUY Upgrade HOLD 2.25 Up 2.230



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