CapitaLand Mall Trust - OCBC Securities 2015-09-15: Attractive valuations; upgrade to BUY.


CapitaLand Mall Trust: Attractive valuations; upgrade to BUY 

 Value has emerged 
 FY16F distribution yield of 6.1% 
 Upgrade to BUY following correction 

Share price has corrected sharply; value has emerged 

  • CapitaLand Mall Trust’s (CMT) share price has dipped 17.6% from its YTD peak price of S$2.27. We believe this was largely driven by the broad market weakness and concerns over an impending Fed lift-off. 
  • Given the vagaries surrounding the global economy, headwinds facing Singapore’s retail sector and CMT’s tenant repositioning exercise at some of its malls, we see the need to fine-tune our assumptions by lowering our FY16 and FY17 DPU projections by 3.1% and 4.4%, respectively, even after factoring in the proposed Bedok Mall acquisition in our model. 
  • Our FY15 DPU estimate is kept intact. 
  • Notwithstanding our forecast cut for FY16, CMT still trades at a distribution yield of 5.9% for FY15F and 6.1% for FY16F. We find current valuations attractive, as the latter is two standard deviations above CMT’s 5-year average forward yield of 5.4%. FY16F P/B ratio of 1.05x is also close to 1.5 standard deviations below the 5-year average mean of 1.17x. 
  • We upgrade CMT from Hold to BUY, albeit with a reduced fair value estimate of S$2.10 (previously S$2.21), as we believe value has emerged following its sharp share price correction. 

Operational trends still resilient 

  • Besides positives from CMT’s current valuation, we believe management’s strong track record and CMT’s focus on necessity spending will allow it to better weather the challenges. Approximately 74.5% of its existing portfolio (by gross revenue) is derived from non-discretionary spending. 
  • Once CMT completes the acquisition of Bedok Mall, this figure would be increased to 76.2%. CMT also managed to deliver positive shopper traffic and tenants’ sales growth of 3.4% and 2.9% YoY in 1H15, respectively, reflecting its resilience. 
  • Although rental reversions for 1H15 moderated to 4.6%, versus the 6.1% registered in 1Q15 and FY14, we believe the softer outlook has been priced in by the market. 

Bedok Mall acquisition to boost CMT’s scale 

  • CMT has obtained unitholders’ approval at its EGM on 10 Sep for the proposed acquisition of all the units in Brilliance Mall Trust which holds Bedok Mall and the issuance of 72m new units as partial payment consideration. CMT expects to complete the acquisition in 4Q15. 

Wong Teck Ching Andy | http://www.ocbcresearch.com/ OCBC Securities 2015-09-15
BUY Upgrade HOLD 2.10 Down 2.21