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

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

  • FY17F yield of 8.2%.
  • Cost of equity at 8.5%.
  • Re-iterate BUY.

1Q17 DPU increases 7.2% YoY 

  • 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%.

Rental reversions of 7.5% for 1Q17 

  • 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.

Long-term potential of Indonesia 

  • 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