CapitaLand Mall Trust - DBS Research 2016-07-25: Playing the funan card well

CapitaLand Mall Trust - DBS Research 2016-07-25: Playing the funan card well CAPITALAND MALL TRUST C38U.SI 

CapitaLand Mall Trust - Playing the funan card well

  • 2Q16 DPU of 2.74Scts in line.
  • 1H16 rental reversion up 1.7%, tenant sales 2.3% higher; occupancy high at 98%.
  • Sneak peak of Funan 2.0, S$560m redevelopment cost to be funded by debt; current gearing 35%.
  • TP raised to S$2.23, maintain HOLD.



Flight-to-safety drives near term price outperformance. 

  • CapitaLand Mall Trust (CMT) share price has done well in recent times, benefiting from increased flows from yield hungry investors given expectations of extension of the current low-rate environment looks. 
  • Given the near term price run, we prefer to be buyers on dips. Maintain HOLD, TP of S$2.23.


Exciting redevelopment plans to sustain Funan’s relevance. 

  • We remain positive on the plans for the redevelopment of Funan, which is in line with our previously highlighted scenario study. 
  • We are supportive of CMT’s choice to undertake the development and capture the alpha from development gains. Apart from an incremental impact to NAV, key is that the proactive asset management strategy which will inject new life to an aging mall. We see the new Funan emerging with improved sustainability and relevance in Civil District.



Gearing has room to finance AEIs and other developments. 

  • As anticipated, CMT will fund Funan’s redevelopment cost of S$560m entirely by debt, comfortably below the S$800m headroom. 
  • Gearing is expected to increase to 38%, which is still comfortable in our view. We do not anticipate the need to raise equity in the immediate term.


Valuation:

  • We raised our DCF-backed TP to S$2.23 from S$2.20 for CMT. We trimmed DPU by 1.5%. 
  • The stock offers a forward DPU yield of 5.2% and total potential return of 6.2%, based on latest closing price of S$2.20. 
  • Maintain HOLD.


Key Risks to Our View:


  • A 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/ 2016-07-25
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.23 Up 2.20


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