Maybank Kim Eng Research 2015-07-22: CapitaLand Mall Trust - Mid-term Concerns Dominate. Maintain SELL.

Mid-term Concerns Dominate 

  • Below expectations. 2Q revenue and NPI down 2.9% and 4% YoY. DPU in line at 2.71cts via a higher payout. No change to our forecasts for now. 
  • QoQ occupancy fell. Rent reversions weakened further. 
  • Expect de-rating catalysts from mid-term concerns over competition & weak economy. Maintain SELL & DDM TP of SGD1.96. 

Occupancy Dipped, Rental Reversions Softened 

  • Even though we were the most bearish on the Street, 2Q results were slightly short of our expectations and certainly below consensus. 
  • Revenue was SGD159.6m (-2.9% YoY, -4.6% QoQ) and NPI, SGD109.5m (-4% YoY, -7% QoQ). DPU met at 2.71cts, but only maintained through a higher payout. 
  • 1H revenue was 48.2% of our FY15F, while NPI was 48.7% and DPU, 49.3%. 
  • Occupancy fell QoQ to 96.4% from 98.8% across the board: Funan, IMM, Bukit Panjang, Atrium, Clarke Quay, JCube, Bugis+ and Westgate. 
  • Whatever the reasons, be they AEI for IMM and Bukit Panjang or tenant repositioning for the rest, these initiatives are done because competition is stiffening, which we have long highlighted for its Jurong malls (IMM, Westgate, Jcube), DTC malls (Raffles City, Funan) and Bukit Panjang. 
  • Furthermore, on the back of a sluggish economy, rental reversions are weakened to ~3.1% in 2Q, down from 6.1% in 1Q (4.6% for 1H). 
  • This is now more reflective of a weak leasing market. 

Maintain SELL on Competition and Weak Economy 

  • Management reiterated that it is taking advantage of the current down cycle to reposition for the future. 
  • To its credit, shopper traffic has improved 3.4% YTD and tenant sales, 2.9% for its portfolio. 
  • However, we think mid-term competitive threats and weak demand will remain the main concerns overhanging the stock. 
  • Maintain SELL and DDM-based TP of SGD1.96 (CoE 7.7%, LTG 2%).

(Joshua Tan)

Source: http://www.maybank-ke.com.sg