Lippo Malls Indonesia Retail Trust - CIMB Research 2017-02-16: Higher earnings from organic and inorganic drivers

Lippo Malls Indonesia Retail Trust - CIMB Research 2017-02-16: Higher earnings from organic and inorganic drivers LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indonesia Retail Trust - Higher earnings from organic and inorganic drivers

  • FY16 earnings slightly ahead, boosted by new acquisitions and positive rental reversions.
  • FY16 rental reversions healthy, up 6.3-7.5% over the previous period.
  • We expect more rental uplift when recontracting the 23% of lease renewals due in FY17.
  • Gearing of 31.5% provides good debt headroom for more acquisitions.
  • Maintain Hold with a slightly higher TP of S$0.39.

4QFY16 results highlights 

  • LMRT reported 4Q/FY16 revenue S$48.7m/S$188.1m, up 9.1%/8.7% yoy. 
  • 4Q/FY16 distribution income of S$24.3m/S$95.5m was 7.2%/11.6% better than a year ago and translates to a DPU of 0.87/3.41 Scts. 
  • FY16 DPU was slightly ahead of our projections, making up 107% of our full-year forecast. 
  • The improved performance was due to income from new acquisitions such as LPB and PICON as well as positive rental reversions.

Maintaining high portfolio occupancy with positive rental uplift 

  • Portfolio occupancy was high at 94.3% as at 4Q16 while weighted average lease to expiry (WALE) remained relatively long at 4.51 years. 
  • In FY16, LMRT renewed/leased 55,855 sqm of space (6.6% of total portfolio net lettable area) at rents 6.3-7.5% higher than those of the preceding period. Its top 10 tenants accounted for 22% of gross rental income.

Renewal of long-term leases could boost earnings from FY18F 

  • There is a further 23%/12% of space expiring in FY17/FY18. 
  • Given that some of the FY17 lease expiries are from long-term and anchor tenants such as Matahari and Hypermart, we think the trust should be able to generate a healthy uplift when the leases are recontracted. The full impact is likely to be felt from FY18 onwards, in our view. 
  • In addition, FY17F earnings are likely to be lifted by a full quarter of contributions from Lippo Mall Kuta, bought in Dec 16.

Low gearing provides headroom for any new acquisitions 

  • LMRT’s gearing stood at 31.5% at end 4Q16, with a small S$125m of bonds due to be refinanced in 2H17. About 70% of its debts are on fixed rates, mitigating the impact of interest rate fluctuations. The trust continue to have significant debt headroom for new acquisitions.

Maintain Hold 

  • We tweak our FY17-18 DPU estimates to factor in the latest results and introduce our FY19 estimates. We roll forward our DDM assumptions. Hence, our target price is lifted marginally to S$0.39. 
  • We maintain our Hold call for now. 
  • Potential key catalysts for share price performance are accretive acquisitions and better-than-expected rental reversions.
  • Key downside risks are slowdown in retail sales and consumption in Indonesia.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-02-16
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.390 Up 0.380