CapitaLand Mall Trust - OCBC Investment 2016-10-24: In-line 3Q16 Results

CapitaLand Mall Trust - OCBC Investment 2016-10-24: In-line 3Q16 Results CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - In-line 3Q16 Results

  • 3Q16 DPU down 6.7% YoY.
  • Expect distribution of income retained.
  • Upgrade to BUY.

3Q16 results within our expectations 

  • CapitaLand Mall Trust (CMT) reported a 4.9% YoY increase in its 3Q16 gross revenue to S$169.7m. This was largely driven by the acquisition of Bedok Mall on 1 Oct 2015, and higher rental contribution from IMM Building (+14%) and Clarke Quay (+8.4%), but partially offset by the cessation of operations of Funan DigitaLife Mall for redevelopment. 
  • NPI grew at a faster pace of 5.5% to S$119.5m due to a slightly improved NPI margin of 70.4% (+0.3 ppt). 
  • However, DPU was down 6.7% YoY to 2.78 S cents. This was because DPU in 3Q15 included the release of S$8.0m (~0.23 S cents/unit) of taxable income retained in 1Q15. Excluding this impact, CMT’s adjusted DPU would have grown 1.1%. 
  • For 9M16, CMT’s gross revenue and NPI rose 6.5% and 6.8% to S$520.4m and S$363.5m, with the latter forming 74.7% of our FY16 forecast. DPU of 8.25 S cents represented a decline of 1.4%, and constituted 73.6% of our full-year projection. 
  • We note that CMT had retained S$12m of its taxation income available for distribution in 1Q16, which we expect to be paid out in 4Q16.

Higher occupancy but rental reversions eased further 

  • Operationally, CMT registered higher occupancy of 98.6% (+0.7 ppt QoQ), underpinned by a strong improvement at Clarke Quay. 
  • On a 9M16 basis, CMT’s shopper traffic increased by 2.9%, while tenants’ sales psf per month inched up 1.2%. However, rental reversions moderated further to 1.3%, versus 1H16’s 1.7% figure, with the drag coming from The Atrium@Orchard, Bugis+ and Westgate.

Upgrade to BUY from HOLD 

  • We maintain our forecasts and fair value estimate of S$2.23 on CMT given this in-line set of results, but upgrade our rating from Hold to BUY as we now see potential total returns of 11%
  • We view CMT as a good quality defensive REIT to own amid the current volatility in the financial markets, given its high trading liquidity (average 6M daily value traded of S$18.3m), prudent capital management and largely resilient portfolio. 
  • Based on our projections, CMT is currently trading at FY16 and FY17 distribution yield of 5.3% and P/B ratio of 1.11x.

Wong Teck Ching Andy CFA OCBC Investment | 2016-10-24
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