CAPITALAND RETAIL CHINA TRUST
AU8U.SI
CapitaLand Retail China Trust - MAS flattening of S$ band to offset weakening RMB pressure
- CapitaLand Retail China Trust (CRCT)’s 1Q16 DPU came in at 2.71cents, up 2.7% yoy, mainly due to rental price growth. This is 25.6% of our previously forecasted FY16 DPU.
- 1Q16 rental reversions slowed to 7.3% from 8.1% in 2015.
- Shopper traffic dropped slightly, down 1.4% yoy but tenant sales edged up 1.1% yoy.
- Gearing remains low at 28.7% (one of the lowest amongst S-Reits) while average cost of debt is 3.04%.
Retail sales growth is slowing
- China’s retail sales, which averaged a 10.5% yoy growth in 2015, increased 10.2% yoy for the Jan-Feb 2016 period, the slowest growth since December 2003.
- Tenant sales for CRCT’s malls in 1Q16 increased 1% yoy, (vs 14.3% yoy in 1Q15), in line with the slowing sentiment.
RMB weakening since end 2015 but new MAS policy should lessen impact
- The RMB has been on a weakening trend vs the SGD, after the PBOC devalued the yuan by the most in two decades, last August.
- Nonetheless, MAS’s surprise move on 14-April-2016 to flatten the S$ band should lessen the impact of a weakening RMB.
- In our previous results note, we factored in flat returns in terms of RMB/SGD translation when RMB revenue is converted to SGD for distributions. We now adjust our forecasts and pencil in a RMB depreciation which will account for a 5% drop in distributions, in view of the weakness in RMB in recent months.
- CRCT does not have a RMB hedging policy for its dividend distributions.
Low gearing provides ammunition for growth as well
- The benign interest rate environment has fuelled S-REITs prices by boosting the attractiveness of S-REITs as investment vehicles vs 10-year bonds which are seeing declining yields.
- Low interest rates also reduce financing costs for REITs and make it easier for REITs to make yield accretive acquisitions.
- While a lot of S-REITs have gradually leveraged up over the past few years, CRCT’s low gearing (relative to other S-REITs) of 28.7% as of end March 2016 gives it ample ammunition to make yield accretive acquisitions going forward.
Investment Action
- In view of our adjusted forecasts for currency translation losses and with the recent price appreciation, we downgrade our call from BUY to ACCUMULATE with a reduced DDM-derived target price of S$1.55 (translates to FY16 yield of 6.5%) from S$1.68.
Dehong Tan
Phillip Securities
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http://www.poems.com.sg/
2016-04-14
Phillip Securities
SGX Stock
Analyst Report
1.55
Down
1.68
