CapitaLand Mall Trust - RHB Invest 2016-03-16: Grab This Retail Giant Now

CapitaLand Mall Trust - RHB Invest 2016-03-16: Grab This Retail Giant Now CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust - Grab This Retail Giant Now 

  • CMT looks set to outperform the market this year. Not only is it exposed to the resilience of retail businesses, we think it may continue to book positive rental reversions, as its tenant sales improved last year. 
  • In line with our optimistic view on the tourism sector, we also think the REIT is poised to benefit from the expected growth in 2016 tourist spending. 
  • Maintain BUY, with a higher SGD2.37 TP (from SGD2.29, 12% upside) with a FY16F dividend yield of 5.3%, implying 17.6% total returns. 

Positive rental reversion may be here to stay. 

  • We are optimistic that CapitaLand Mall Trust (CMT) is able to register mid single-digit (c.5%) positive rental reversion for this year, as we see encouraging trends in tenant sales (psf/month) and traffic flow at its malls. 
  • In the recent reported quarter, the retail REIT reported an upward trend in tenant sales, a 5.3% YoY increase for FY15. With this, we think that the retail landlord is in a better position to command higher rental rates this year. 

Riding on the recovery of the tourism sector. 

  • As we turn confident over the recovery of the tourism sector this year, we expect the higher number of tourist arrivals would spur consumer spending in retail malls. This, in turn, would benefit CMT, as its malls are in close proximity to tourist attractions such as Plaza Singapura, Bugis Junction and Clark Quay. 
  • We also think that the anticipated recovery of the tourism sector in 2016 could be boosted by positive catalysts like: 
    1.  Lower air fares. 
    2.  A busier year for events. 
    3.  An expected increase in Chinese tourists visiting Singapore. 

Upbeat on its capital recycling strategy. 

  • We think there is still room for CMT to exercise a capital recycling strategy, given that it currently owns non-core assets such as JCube and Sembawang Shopping Centre. 
  • In addition, we like the manner in which it manages its portfolio. Recall that CMT recently sold off its non-core asset, Rivervale Mall, which was estimated to be divested at an attractive cap rate of c.3.4%. 
  • In comparison to the average cap rates for retail assets, independent real estate company CBRE estimated 4Q15 average cap rates to range from 4.75% to 5.25%. 

Stable dividend yield of >5%, maintain BUY as we lift TP to SGD2.37 (from SGD2.29). 

  • We think that the REIT is trading at an attractive entry level as its dividend yield is at an enticing 5.3%. Our reviewed TP implies a total return of 17.6%. 
  • In addition, we advise investors to take up CMT as it is highly liquid, which may be especially advantageous in the current volatile equity market. 
  • We maintain our BUY recommendation with a higher DDM-derived TP of SGD2.37, with a stable FY16F dividend yield of 5.3%.

Ivan Looi RHB Invest | 2016-03-16
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 2.37 Up 2.29