CapitaLand Retail China Trust - OCBC Investment 2015-10-26: Lowering our FV on softer CNY assumptions

CapitaLand Retail China Trust - OCBC Investment 2015-10-26: Lowering our FV on softer CNY assumptions CAPITALAND RETAIL CHINA TRUST AU8U.SI 

CapitaLand Retail China Trust - Lowering our FV on softer CNY assumptions

  • 3Q15 DPU grew 12.3% YoY 
  • Positive rental reversions of 10.9% in 3Q15 
  • Lower FV and maintain HOLD

3Q15 results met our expectations 

  • CapitaLand Retail China Trust (CRCT) reported its 3Q15 results which came in within our expectations. Gross revenue increased 7.5% YoY to S$55.3m due largely to a stronger CNY vis-à-vis the SGD, as gross revenue in CNY terms fell 0.7% to CNY251.8m. 
  • The latter was due to continued impact on CapitaMall Minzhongleyuan (MZLY) from a road closure to facilitate the construction of a subway line and ongoing weakness at CapitaMall Wuhu, but partially offset by rental growth in its other multi-tenanted malls. 
  • DPU grew 12.3% YoY to 2.64 S cents. 
  • For 9M15, CRCT’s gross revenue jumped 9.0% to S$164.1m and formed 76.3% of our FY15 forecast; while DPU of 8.01 S cents represented growth of 9.1% and constituted 75.4% of our full-year projection. 

Operations largely still healthy 

  • Besides CapitaMall MZLY and CapitaMall Wuhu, CRCT’s other malls delivered positive YoY gross revenue and NPI growth in RMB terms in 3Q15. 
  • Overall portfolio committed occupancy remained stable at 94.8% (-0.2 ppt QoQ). Solid YoY tenants’ sales growth of 12.7% was recorded in 3Q15, while shopper traffic inched up 2.4%. 
  • Portfolio rental reversions came in at 10.9% in 3Q15, regaining some momentum as compared to 2Q15’s 4.6% rental uplift. This brings its 9M15 rental reversion figure to 8.9%. 
  • Nevertheless, we note that for the remainder of 2015, CapitaMall MZLY has 13.5% of its leases (as a percentage of the mall’s rental income) expiring. 
  • We believe this may exert a drag on CRCT’s rental reversions for 4Q15. 
  • In addition, we understand that a large tenant occupying 1,200 sqm of space has already indicated its intention to not renew its lease upon expiry in 4Q15. 

Maintain HOLD 

  • As at 30 Sep 2015, CRCT had a healthy gearing ratio of 28.5%, with an average cost of debt of 2.98%. 74.0% of its total borrowings are fixed (83.7% if we exclude onshore RMB denominated loans). 
  • However, we are lowering our DDM-derived fair value estimate from S$1.64 to S$1.48 as we input lower CNY-SGD exchange rate assumptions in our model. Maintain HOLD.

Andy Wong Teck Ching CFA OCBC Investment | http://www.ocbcresearch.com/ 2015-10-26
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.48 Down 1.64