CapitaLand Mall Trust - OCBC Investment 2015-11-30: A good blue chip name to buy

CapitaLand Mall Trust - OCBC Investment 2015-11-30: A good blue chip name to buy CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust: A good blue chip name to buy 

 Price corrected post our downgrade 
 FY16F yield close to 2 SD above 5- year mean 
 Expect stable DPU growth 

Valuations back to attractive levels 

  • Following our downgrade on CapitaLand Mall Trust (CMT) to a Hold on 22 Oct 2015, we note that its share price has since corrected 8.5%, as market jitters resurfaced over the possibility of a Fed lift-off in Dec this year after a strong Oct jobs data report. 
  • At current price levels, we believe the market has adequately priced in the risks associated with an interest rate hike as well as headwinds facing the retail sector in Singapore. 
  • CMT's risk-reward appears compelling, with the stock trading at 6.1% FY16F distribution yield, which is close to two standard deviations above its 5-year forward average of 5.5%. 
  • The yield spread of CMT against the Singapore Government 10-year bond yield currently stands at 3.6 ppt, and this comes in at half a standard deviation above the 5-year mean of 3.4 ppt. 
  • From a book value perspective, CMT's FY16F P/B ratio is 1.05x, and this is also attractive, in our view, as it is 1.5 standard deviations below its 5- year forward mean of 1.16x. 
  • Based on these factors, we are upgrading CMT from HOLD to BUY, with an unchanged fair value estimate of S$2.09

Seeking to unlock asset value 

  • CMT's management is constantly seeking to enhance the value of its portfolio by carrying out asset rejuvenation works and tenant repositioning exercises to make its malls more relevant to consumers. 
  • An example of this is Tampines Mall, whereby CMT reconfigured its second and third level to boost its fashion offerings, bringing in new tenants such as H&M. It is also speeding up phase two of its AEI at IMM Building. 
  • Other initiatives include exploring opportunities to unlock asset value, such as the possible redevelopment or disposal of Funan DigitaLife Mall. 

Still room for growth 

  • While we are cognisant of challenges facing retail landlords, we expect CMT to continue delivering stable growth to its unitholders. 
  • We forecast DPU growth to come in at 2.3% and 2.5% for FY15 and FY16, respectively, partly driven by contribution from its recent Bedok Mall acquisition. 

Wong Teck Ching Andy OCBC Securities | http://www.ocbcresearch.com/ 2015-11-30
OCBC Securities SGX Stock Analyst Report BUY Upgrade HOLD 2.09 Same 2.09