CAPITALAND MALL TRUST
C38U.SI
CapitaLand Mall Trust - Christmas Present is Still in the Box
- 3Q16’s negative DPU growth a false alarm, in line after adjusting for earnings retention.
- Higher finance costs offset improved contributions from Tampines Mall and IMM.
- Rental reversion 1.3%; Occupancy high at 98.6%; slowdown in shopper traffic and tenant sales.
- Maintain BUY, expect flat DPU in FY17.
Negative DPU in 3Q16 is a false alarm as retention is boxed for distribution in 4Q16.
- CapitaLand Mall Trust (CMT)’s reported 3Q16 DPU was 2.78Scts and 9M16 DPU was 8.25Scts, down 6.7% and 1.4% y-o-y, respectively.
- Investors should not be alarmed by the negative growth, as a higher base was set by the DPU in 3Q15 due to S$8.0m (or 0.23Scts) retention paid out in 3Q15, out of S$12.5m retained from 1Q15.
- Stripping out the payment of S$8m in 3Q15, DPU growth was up a marginal 1.1% in 3Q16.
- CMT retained S$12.0m of its taxable income in 1Q16, equivalent to c.0.34Scts in DPU terms, and will pay this out in the festive season next quarter.
- We expect flattish DPU growth for the full year.
Funan’s redevelopment plans are within our expectations.
- Plans for Funan 2.0, including a cycle-through mall, two Grade A office towers, and co-living apartment units, were largely in line with our scenario study published on 1 July 2016 (Rhapsody of Funan 2.0).
- We are supportive of CMT’s decision to undertake the redevelopment. Apart from a potential 4 Scts (or 2.0%) boost to NAV, we applaud the proactive asset management strategy to turn the ageing mall into a ’lifestyle destination’.
Gearing has room to finance asset enhancement programs and other developments.
- As CMT will fund Funan’s redevelopment cost of S$560m entirely with debt, which is comfortably below the S$800m headroom available, gearing is expected to increase to 38%, which is still healthy.
Valuation
- We have a DCF-backed TP of S$2.25. The stock offers FY16/17F DPU yields of c.5.0% and total potential return of c.11.5% based on its last traded price of S$2.11.
Key Risks to Our View
- A rate hike surprise before December. While consensus is still ruling out a hike in November just days before the US election, any surprise move by the Fed may cause ripples in the market.
- In the unlikely scenario of a rate hike ahead of consensus’ year-end expectation, we believe this will be an opportunity for investors to accumulate the stock on any dips.
Derek Tan
DBS Vickers
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Mervin Song CFA
DBS Vickers
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Singapore Research Team
DBS Vickers
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http://www.dbsvickers.com/
2016-10-24
DBS Vickers
SGX Stock
Analyst Report
2.25
Same
2.250
