CapitaLand Retail China Trust - Phillip Securities 2016-07-28: Portfolio retail sales showing signs of rebound

CapitaLand Retail China Trust - Phillip Securities 2016-07-28: Portfolio retail sales showing signs of rebound CAPITALAND RETAIL CHINA TRUST AU8U.SI 

CapitaLand Retail China Trust - Portfolio retail sales showing signs of rebound

  • 1H16 NPI and DPU came in at 52.2% and 52.5% of our FY16 forecasts respectively.
  • Portfolio occupancy remains stable (94.9% vs 95.1% in FY15), even as positive reversions moderate (5.9% in 1H16 vs 8.1% in FY15).
  • Fog at MinzhongLeyuan to be lifted soon; successful initiatives at Wuhu lifted footfall.
  • Retail sales seen turning around in May/June.
  • No plans to implement currency hedging for distributions for now.
  • Maintain ACCUMULATE with unchanged target price of S$1.55.



Portfolio occupancy remains stable, even as positive reversions moderate. 

  • General portfolio occupancy remained stable at 94.9% (from 95.1% in FY15). Excluding malls under stabilization CapitaMall MinzhongLeyuan and Wuhu (collectively 7% of portfolio by valuation), other malls have been operating close to full occupancy. 
  • Portfolio rental reversions continued moderating from the 11.5%-23.1% range seen in the early 2010s to 5.9% in 1H16.


Fog at MinzhongLeyuan to be lifted soon; successful initiatives at Wuhu lifted footfall.

  • For the malls under stabilization, Management guided that the subway line construction affecting CapitaMall MinzhongLeyuan remains slated to be completed by end of this year according to official government announcements. 
  • Management continues to revamp CapitaMall Wuhu which is facing competition from an oversupply of malls in its vicinity. Measures to improve the mall performance include introducing shorter leases (to attract more tenants who are still unwilling to commit to longer contracts) and organizing more carnivals in the mall, which has led to a q/q increase in footfall of c.10% in 2Q16. 
  • Management targets to achieve committed occupancy of 80-90% for Wuhu by end of the year.


Retail sales seen turning around in May/June. 

  • Management guided that retail sales in portfolio malls saw a turnaround in May and June 2016 after falling for the first four months this year. 
  • Negative sentiment in the first four months this year amidst the Chinese stock market fall on fears of the RMB devaluation could have contributed to the lackluster retail sales. 
  • While there are signs of green shoots emerging for retail sales in recent months, we note the longer term slowing retail sales in portfolio tenant sales since 2014.


No plans to implement currency hedging for distributions for now. 

  • CRCT does not currently have any currency hedging policies for its distributions. 
  • Management guided that there are still no plans as yet to implement one despite the ongoing pressure on the RMB. Reasons for this include the original intention of the REIT to allow investors to participate in the long term potential of China retail and the RMB, and major institutional investors having their own hedging tools.


Investment Action

  • We maintain our ACCUMULATE call with an unchanged DDM-derived target price of S$1.55 (translates to FY16 yield of 6.5%).




Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2016-07-28
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 1.55 Same 1.55


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