CapitaLand Mall Trust - DBS Research 2016-10-24: Christmas Present is Still in the Box

CapitaLand Mall Trust - DBS Vickers 2016-10-24: Christmas Present is Still in the Box CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Christmas Present is Still in the Box

  • 3Q16’s negative DPU growth a false alarm, in line after adjusting for earnings retention.
  • Higher finance costs offset improved contributions from Tampines Mall and IMM.
  • Rental reversion 1.3%; Occupancy high at 98.6%; slowdown in shopper traffic and tenant sales.
  • Maintain BUY, expect flat DPU in FY17.



Negative DPU in 3Q16 is a false alarm as retention is boxed for distribution in 4Q16. 

  • CapitaLand Mall Trust (CMT)’s reported 3Q16 DPU was 2.78Scts and 9M16 DPU was 8.25Scts, down 6.7% and 1.4% y-o-y, respectively. 
  • Investors should not be alarmed by the negative growth, as a higher base was set by the DPU in 3Q15 due to S$8.0m (or 0.23Scts) retention paid out in 3Q15, out of S$12.5m retained from 1Q15. 
  • Stripping out the payment of S$8m in 3Q15, DPU growth was up a marginal 1.1% in 3Q16. 
  • CMT retained S$12.0m of its taxable income in 1Q16, equivalent to c.0.34Scts in DPU terms, and will pay this out in the festive season next quarter. 
  • We expect flattish DPU growth for the full year.


Funan’s redevelopment plans are within our expectations. 

  • Plans for Funan 2.0, including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0). 
  • We are supportive of CMT’s decision to undertake the redevelopment. Apart from a potential 4 Scts (or 2.0%) boost to NAV, we applaud the proactive asset management strategy to turn the ageing mall into a ’lifestyle destination’.


Gearing has room to finance asset enhancement programs and other developments. 

  • As CMT will fund Funan’s redevelopment cost of S$560m entirely with debt, which is comfortably below the S$800m headroom available, gearing is expected to increase to 38%, which is still healthy.


Valuation

  • We have a DCF-backed TP of S$2.25. The stock offers FY16/17F DPU yields of c.5.0% and total potential return of c.11.5% based on its last traded price of S$2.11.


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 by the Fed may cause ripples in the market.
  • In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe this will be an opportunity for investors to accumulate the stock on any dips.




Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | Singapore Research Team DBS Vickers | http://www.dbsvickers.com/ 2016-10-24
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.25 Same 2.250



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