CAPITALAND RETAIL CHINA TRUST
AU8U.SI
CapitaLand Retail China Trust - Continues to deliver
- 1Q16 DPU of 2.71 Scts (+2.7% y-o-y) in line with expectations.
- NPI for core multi-tenanted malls up 3.7% with reduced loses at Minzhongleyuan and Wuhu.
- Uptick in rental reversions from 5.9% in 4Q15 to 8.1% in 1Q16.
Over-reaction to China slowdown.
- CRCT has corrected since end-Jun-15 on the back of China growth fears.
- We believe this is an over-reaction as CRCT continues to perform, delivering positive DPU growth over the past few quarters.
- With CRCT trading at 0.8x book and offering attractive FY16-17F yields of 7.5%-7.7%, we maintain our BUY rating and S$1.69 TP.
Investment opportunity during earnings lull.
- With several of CRCT’s malls still ramping up or in a transition phase, CRCT is still able to deliver growth. For example, Grand Canyon (acquired in 2014) is generating an annualised NPI yield of only c.5.5% (based on the original acquisition price) versus target range of 7-8%.
- Meanwhile, Minzhongleyuan and Wuhu are incurring losses due to nearby road closures and reposition works respectively.
- Upon stabilisation of these three malls and continued growth for CRCT’s multi-tenanted malls (3-year NPI CAGR of 3%), we expect to see a pick up in CRCT’s earnings in the medium term.
Low gearing provides upside from acquisitions.
- CRCT’s gearing of only 28.7% (as at end Mar16) versus the new 45% limit imposed by MAS, places CRCT in a strong position to pursue DPU-accretive acquisitions.
Valuation:
- With a potential 12-month total return of 25% (16% capital upside and 7.4% yield), we maintain BUY and TP of S$1.69.
- The delivery of DPU growth in the coming year should allay investors' fears over possible negative rental reversions and trigger a re-rating from the current depressed levels.
Key Risks to Our View:
- Significant downturn in China. The key risk to our positive view is if China experiences a hard landing which would result in lower-than-expected or negative growth in retail sales. This in turn would translate into lower rents and DPU for CRCT.
Mervin Song CFA
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Derek Tan
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http://www.dbsvickers.com/
2016-04-14
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SGX Stock
Analyst Report
1.69
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