CapitaLand Mall Trust - DBS Research 2017-01-23: Focus on Stability

SGinvestors.io

CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Focus on Stability

• 4Q16 DPU flat, full year FY16 DPU was 11.1Scts, down 1.1% y-o-y.
• Top line performance weakened on a comparable mall basis.
• Rental reversion slowed to 1.0%.
• Revised TP to S$2.17.

Focus for FY17 is to maintain stable DPU. 

• CapitaLand Mall Trust (CMT)’s slight negative DPU growth of 1.1% in FY16 was not a surprise. 
• Growth engines such as tenant sales and shopper traffic continue to place downward pressure on the back of a still challenging retail environment, which resulted in slower growth in rental reversions. 
• Without yield accretive acquisitions, the focus for FY17 is to maintain stable DPUs. Hence, we expect flattish to marginal DPU growth for the next couple of years.

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 revised our DCF-backed TP to S$2.17 from S$2.25 and trimmed DPU forecasts for FY17/18 by 1.2-1.7%, as we lowered our growth assumptions. 
• The stock offers FY17F DPU yield of above 5.5% and total potential return in excess of 14% based on its last traded price of S$1.99.

Key Risks to Our View

• More aggressive rate hikes than consensus’ expectations.
• While the consensus is expecting three rate hikes in 2017, more aggressive policy directions may send ripples in the market. 
• CMT being a proxy for interest-rate investment, may then suffer from selling pressure.

Singapore Research Team DBS Vickers | Derek Tan DBS Vickers | Mervin Song CFA DBS Vickers | http://www.dbsvickers.com/ 2017-01-23

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 2.17 Down 2.250