CapitaLand Mall Trust - DBS Research 2016-07-01: Rhapsody of Funan 2.0

CapitaLand Mall Trust - DBS Research 2016-07-01: Rhapsody of Funan 2.0 CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust - Rhapsody of Funan 2.0

  • Risk aversion from Brexit will drive flight to safety and hunt for yields while consensus also sees a more dovish Fed, both to benefit CMT.
  • NAV impact from Funan’s redevelopment is estimated to be from +1 to +5 Scts per share.
  • TP S$2.20 and HOLD call maintained.



Flight-to-safety drives near term price outperformance. 

  • Risk aversions following the referendum of Brexit on 24th June and expectations of a more dovish Fed have been driving investors back to “safe havens”, CMT has benefited from this trend over the week. 
  • While CMT is likely to be the main proxy for investors seeking liquid high yielding plays in the near term, we believe that investors should be cautious given the run up in the price in the short term. CMT is now trading around its historical mean (yield and P/NAV).


Funan’s redevelopment could be a positive catalyst to earnings and NAV. 

  • As we approached the last day of operations at Funan, the detailed redevelopment plan has yet to be announced. 
  • Based on our assumptions, we forecast that the redevelopment will impact CapitaLand Mall Trust (CMT)’s NAV per share by +1Scts to +5Scts (or 0.7% to 2.5%), and have provided two scenarios based on different combinations of the various components, and believe that adding a serviced apartment and office in the new integrated development will add most value, nurturing an ecosystem of users to the revamped retail offering.


Gearing has room to finance AEIs and other developments. 

  • We believe CMT has the ability to finance the redevelopment of Funan using debt funding. 
  • While gearing will rise from 35% to 38%, it is still in line with management's comfortable level of < 40%. Therefore any equity fundraising is unlikely.


Valuation:

  • We have a DCF-backed TP of S$2.20 for CMT. 
  • The stock offers a forward DPU yield of 5.6%-5.7% and total potential return of 8.9%, based on latest closing price of S$2.13. 
  • Maintain HOLD on valuations.


Key Risks to Our View:

  • A more dovish Fed. Consensus now sees the Fed holding rates steady this year, down from 1-2 rate hikes following Brexit. Any dovish rhetoric from the Fed implies risk on the upside.




Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2016-07-01
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.20 Same 2.20


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