Lippo Malls Indonesia Retail Trust - CIMB Research 2017-06-21: Continues On Growth Path

Lippo Malls Indonesia Retail Trust - CIMB Research 2017-06-21: Continues On Growth Path LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indonesia Retail Trust - Continues On Growth Path

  • We adjust our FY17-19 DPU estimates to factor in three recent developments.
  • 1Q17 performance lifted by new contributions and positive rental reversions, potential AEIs to provide further medium term lift.
  • LMRT proposed to acquire Lippo Plaza Kendari for S$33.2m or 9% NPI yield.
  • Raised S$120m of perpetual securities, gearing likely to dip to 27.5%.
  • Maintain Hold, with higher target price of S$0.41.

Updating our FY17-19 forecasts 

  • We review our forecasts for LMRT following recent developments including 
    1. 1Q17 results, 
    2. new acquisition of Lippo Plaza Kendari, and 
    3. issuance of S$120m perpetual securities. 
  • We are still upbeat on outlook, led by prospects of higher rents and acquisition growth.

1Q17 bolstered by new contributions and positive rental reversions 

  • LMRT posted a 7.2% rise in 1Q17 DPU to 0.89 Scts, led by the maiden contribution from Lippo Mall Kuta and positive rental reversions of 7.5% in 1Q. 
  • Portfolio occupancy stayed at 93.8%. A remaining 20% of portfolio NLA is scheduled to be re-contracted, largely towards end-2017. We expect these to enjoy higher average rents on renewal. 
  • Besides Istana Plaza, Gajah Mada Plaza, Plaza Semanggi and Sun Plaza are slated for asset enhancement initiatives (AEI). This should provide some income uplift upon completion.

Proposed purchase of Lippo Plaza Kendari 

  • LMRT recently announced the proposed purchase of Lippo Plaza Kendari (LPK), its first property in Sulawesi, for Rp310bn (S$33.2m) or at a NPI yield of 9%. The property is a 4- storey shopping mall with net lettable area of 21,008 sq m. 
  • Operational since 2012, the mall is a family mall situated in a residential area and has major tenants such as Matahari Dept Store, Hypermart, Pizza Hut, Solaria, Cinemaxx and Timezone.

Issuance of S$120m perpetual securities 

  • The trust raised S$120m 6.6% 5-year perpetual securities in Jun 17. Part of the proceeds is likely to be used to fund the purchase of LPK. 
  • Assuming the remainder funds are used to repay part of the debt due this year, gearing could likely decline from 33.2% to 27.5%, after taking into account the latest acquisition. This puts the trust in a strong position for further inorganic growth.

Maintain Hold 

  • We raise our FY17-19 DPU forecasts by 7.1-9.5% to take into account the latest results, new acquisition and perpetual securities raised. 
  • We also tweak our INR/S$ exchange rate assumption from 9,500 to 9,400. Accordingly, our DDM-based target price is raised to S$0.41. This translates to a total return of 4-5% following the recent strong share price performance of Lippo Malls Indonesia Retail Trust. So, we keep our Hold call. 
  • Catalysts would be higher than expected rental renewal growth rate and new acquisitions while risk is a weakening of the INR to S$.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-06-21
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 0.41 Up 0.390