CAPITALAND RETAIL CHINA TRUST
AU8U.SI
CapitaLand Retail China Trust - FX a near-term headwind
- Acquisition of Galleria mall in Chengdu for total investment cost of Rmb1.53bn and 5.4% NPI yield.
- Opportunity to achieve higher NPI yield through tenant remixing and leveraging on CapitaLand’s strong network of five existing malls in Chengdu.
- 1-4% accretion to FY16-17F DPU.
Currency an unfortunate hindrance.
- We maintain our HOLD call with a revised TP of S$1.65. While we remain positive on CRCT’s medium-term outlook, forecasting an 8% 3-year NPI CAGR in RMB terms, the recent depreciation of the RMB versus SGD might cap CRCT’s near-term performance as seen by the 4% y-o-y decline in 2Q16 DPU.
- However, should there be any share price weakness we would use it as an opportunity to gain exposure to the growing Chinese consumption story.
Earnings still gestating.
- The potential of CRCT’s malls have not been maximised as several properties are still ramping up or in a transition phase. These include
- Grand Canyon (acquired in 2014) which is generating an annualised NPI yield of only c.5.4% (based on the original acquisition price) versus target range of 7-8%,
- Minzhongleyuan and Wuhu which are incurring losses due to nearby road closures and reposition works respectively, and
- the recently announced acquisition of Galleria mall whose margins are sub-optimal owing to previous management by third-party operators.
- Upon stabilisation of these properties and continued growth at CRCT’s other multi-tenanted malls, we project a 8% p.a. growth in NPI (in RMB terms) over the next three years.
Upside from acquisitions.
- Post the acquisition of Galleria mall, CRCT’s gearing will rise to 36-37% but will still be below the 45% limit imposed by MAS. With some debt headroom and our understanding that price expectations from potential sellers are now lower, there may be further acquisition prospects for CRCT.
Valuation
- After incorporating the acquisition of Galleria mall in Chengdu, we raised our DCF-based TP to S$1.65 from S$1.60 previously.
Key Risks to Our View
- Acquisitions. Upside will come from potential acquisitions that management may be reviewing. We have not factored any additional acquisitions in our numbers at this point.
Mervin Song CFA
DBS Vickers
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Derek Tan
DBS Vickers
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http://www.dbsvickers.com/
2016-08-22
DBS Vickers
SGX Stock
Analyst Report
1.65
Up
1.600
