Lippo Malls Indonesia Retail Trust - CIMB Research 2016-05-04: Dual earnings growth drivers

Lippo Malls Indonesia Retail Trust - CIMB Research 2016-05-04: Dual earnings growth drivers LIPPO MALLS INDO RETAIL TRUST D5IU.SI 

Lippo Malls Indonesia Retail Trust - Dual earnings growth drivers 

  • 1QFY16 results largely in line, supported by organic and acquisition expansion. 
  • Achieved 7.5% rental renewal growth over preceding levels. 
  • Sizeable FY17 lease expiries to underpin positive earnings trajectory. 
  • Proposed acquisition of Lippo Mall Kuta and Lippo Yogjakarta to further drive inorganic growth. 
  • Maintain Add with a DDM-based target price of S$0.37. 

■ 1Q16 results in line 

  • LMIRT’s results were largely in line with 1QFY16 DPU of 0.83 Scts (+5.1% yoy) making up c.27% of our full-year forecast. 
  • At the topline, revenue in rupiah terms climbed 9.6% yoy while NPI rose a healthy 6.6%. 
  • An estimated 1.9% yoy depreciation in rupiah to Singapore dollar led to 8.5% revenue improvement and 4.6% higher NPI in Singapore dollar terms. 
  • Distribution income rose 7.8% yoy to S$23.2m thanks to organic and acquisition expansion. 

■ Organic expansion drove earnings 

  • Income growth came largely from organic rental improvement as well as contributions from new acquisitions such as Lippo Plaza Batu and PICON, bought in July 15. 
  • In 1Q16, the trust renewed 20,920 sq m of NLA, largely from specialty stores, at 7.5% over preceding levels, while portfolio occupancy stayed high at 94.7%. 
  • Management guided that with rising purchasing power and disposable income of the middle class, retail sales is likely to remain resilient. This would likely benefit LMIRT’s portfolio of malls. 

■ Sizeable lease renewals in FY17 should underpin growth 

  • The trust has a remaining 7% of leases expiring in FY16 and 24% in FY17. We believe that the bulk of the renewals for FY17 are for the longer dated retail space leases. 
  • Given the robust performance of retailers within this trade category, we expect the trust to continue to enjoy positive rental reversions when these renewals are concluded. 

■ New acquisitions to further boost bottomline 

  • The trust had earlier announced the proposed acquisition of Lippo Mall Kuta and Lippo Yogjakarta, valued at a total of S$132.6m. Final details are still pending, but based on earlier indications, these purchases could add c.S$14.9m or 8-10% to LMRT’s portfolio NPI, when completed. This will continue to drive LMRT’s income growth. 
  • LMIRT’s gearing stands at 35.7% and has sufficient debt headroom to fund the purchase. 

■ Maintain Add, near term earnings visibility sustained 

  • We tweak our FY16-18 DPU by 0.4-2.4% to adjust for the latest property details and proposed acquisitions. 
  • LMIRT has hedged c.90% of their distribution income till Feb 2017. As such, LMIRT offer investors high FY16 dividend yield of 9.4% with good earnings visibility. 
  • We maintain our Add call with an unchanged DDM-based target price of S$0.37.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-05-04
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 0.37 Same 0.37