Lippo Malls Indo Retail Trust - OCBC Investment 2017-05-08: Eight Quarters Of Positive Q-o-Q DPU Growth

LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust - Eight Quarters Of Positive Q-o-Q DPU Growth

Lippo Malls Indonesia Retail Trust's (LMIRT) results were in line with expectations.
1Q17 DPU increased 7.2% YoY to 0.89 S cents, or 26.2% of our full-year forecast.
Gross revenue increased 6.7% to S$48.6m, on the back of positive rental reversions for existing malls achieved in the past year as well as contributions from the recently acquired Lippo Mall Kuta. As a result, NPI increased 12.9% YoY to S$46.1m.
Total occupancy rate stands at a healthy 93.8%.

We note that LMIRT posted rental reversions of 7.5% in 1Q17 for around 0.6% of its leases by NLA and expect it to enjoy even higher rental reversions in Dec this year when the bulk of lease renewals are due to happen.
We note LMIRT’s efforts to rejuvenate their malls, with asset enhancement initiatives at Sun Plaza (weighted average occupancy of 99.1% in 2016), Gajah Mada Plaza (75.1% occupancy) and Plaza Semanggi (85.6% occupancy).
Supported by its history of positive rental reversions, LMIRT has so far enjoyed eight consecutive quarters of positive QoQ DPU growth – from 0.73 S cents in 2Q15 to 0.89 S cents in 1Q17.

As of last Friday’s closing price of S$0.425, LMIRT is currently trading at an attractive FY17F yield of 8.2%.
Over the longer-term, we are positive on LMIRT given that Indonesia retail presents a healthy outlook with strong growth rates projected for household spending.
Given that occupancy costs in LMIRT’s malls are estimated to be relatively low (~10%), we see much potential for positive rental reversions in the long run.
In terms of forex risk, LMIRT’s hedging contracts expired in Feb 2017 and have been renewed for the following eight quarters.
Our cost of equity remains at 8.5%. After making adjustments, our fair value increases slightly from S$0.430 to S$0.435.
70% of LMIRT’s debt is on a fixed rate basis, with a weighted average maturity of debt of 2.34 years. Gearing (excluding the perpetual securities) was 32.2% as at 31 Mar 2017.
We re-iterate our BUY rating with a fair value of S$0.435.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-05-08

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 0.435 Up 0.430