Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-04-04: Positive on Indo Retail

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LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - Positive on Indo Retail

• Retail sales expected to grow 12% in 2017.
• FY17F yield of 8.6%.
• Re-iterate BUY.

Indicators look positive for Indonesia’s retail sector 

• With the World Bank projecting Indonesia’s GDP to grow 5.3% in 2017 and 5.5% in 2018 (Global Economic Prospects report – Jan 2017), the macroeconomic indicators underlying Indonesia’s retail sector continue to look healthy. 
• We note that Indonesia was ranked fourth globally in Nielsen’s 4Q16 Consumer Confidence Report with an index score of 136, behind India, the Philippines, and the United States. 
• With regard to Indonesia’s retail sales, the Chairman of Aprindo, the Indonesian Retailers Association, expects to see a 12% growth to IDR 220tn in 2017, after retail sales expanded 10% to IDR 200tn in 2016.

Rental rates expected to remain stable in 2017 

• In 2017, we expect occupancy rates and rental rates to remain stable in Greater Jakarta, given the relatively muted supply pipeline this year as well as indicators of a healthy retail sector. 
• On top of this, we expect Lippo Malls Indonesia Retail Trust (LMIRT) to enjoy strong rental reversions when 23% of their leases by NLA expire closer to the end of 2017.
• Beyond 2017, we see a risk of occupancy and rental reversion headwinds in 2019 as the annual retail supply is projected to increase by ~5% in Jakarta and by ~11% in Greater Jakarta according to Colliers. 
• Nonetheless, we do note LMIRT’s efforts to rejuvenate their malls, with asset enhancement initiatives at Gajah Mada Plaza (weighted average occupancy of 75.1% in 2016) and Plaza Semanggi (85.6% occupancy).

Trading at FY17F yield of 8.6% 

• In terms of corporate updates, Chan Lie Leng has been appointed the new CEO of LMIRT as of 16 March 2017, bringing with her more than 25 years of banking and corporate finance experience. 
• As of yesterday’s closing price of S$0.395, LMIRT is currently trading at an attractive FY17F yield of 8.6% and a FY18F yield of 8.7%. 
• We are positive on LMIRT given that Indonesia presents a healthy retail outlook and given the opportunity to attain further DPU growth this year through the upcoming lease expiries. 
• We re-iterate our BUY rating with a fair value of S$0.43.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-04-04

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.430 Same 0.430