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
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