CapitaLand Mall Trust - DBS Research 2016-04-18: Awaiting Funan’s potential

CapitaLand Mall Trust - DBS Research 2016-04-18: Awaiting Funan’s potential CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust - Awaiting Funan’s potential 

  • 1Q16 DPU slightly behind our estimate with rental reversion at 1.4% 
  • Debt headroom remains decent for AEI and potential acquisitions 
  • Downgrade to HOLD in view of strong performance and lack of clarity on Funan’s future 
  • Redevelopment of Funan could unveil the next catalyst 


Lack of clear near-term catalysts; downgrade to HOLD. 

  • Funan will be redeveloped into a lifestyle destination over the next three years, starting July 2016. 
  • Bedok Mall is currently a more powerful earnings generator than Funan (S$10.9m vs S$5.6m, 1QFY16 NPI). 
  • We maintain our FY16F DPU, however, due to the lack of material information on the redevelopment plan of Funan, we have not accounted for capex or Funan’s possible additional future earnings. 
  • In addition, the stock price has performed well over last quarter and our forecasted total return has now been compressed to 6.9%. Hence given limited upside, we downgrade our recommendation to HOLD. 

Reversions to fall to 4-5% over the next few years. 

  • As retailers’ profitability continue to be squeezed by high labour costs and middling retail sales, we believe that rental reversions are likely to fall within the 3% range in the next 1-2 years. Having said that, we do not believe that there is a risk of negative portfolio reversions. 
  • CMT’s properties, which boast of good accessibility and proactive customer retention efforts (through CapitaStar rewards programme) should enable the Trust to weather uncertainties well. 

Gearing to remain stable; upside from potential developments and acquisitions. 

  • CMT’s gearing ratio is projected to remain fairly stable at c.35% over FY16-17F, which is in line with management's comfortable range of < 40%. 
  • Given its sizeable portfolio, we believe that returns can be enhanced if the Trust undertakes more AEIs or brownfield developments. 

Valuation: 

  • We have a DCF-backed TP of S$2.20. At current price, the stock offers investors a DPU yield of 5.4% for FY16, and offers a total return of 7%. 
  • We downgrade our call to HOLD. 

Key Risks to Our View: 

  • Upside risk from the redevelopment of Funan. We are hopeful of management’s aspiration of transforming Funan into a lifestyle destination. Unveiling the concrete plan could be a near-term catalyst.



Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-04-18
DBS Vickers SGX Stock Analyst Report HOLD Downgrade BUY 2.20 Up 2.10


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