CapitaLand Mall Trust - CIMB Research 2017-07-21: Building Longer Term Strength

CapitaLand Mall Trust - CIMB Research 2017-07-21: Building Longer Term Strength CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - Building Longer Term Strength

  • CapitaLand Mall Trust's 1HFY17 DPU of 5.48 Scts is in line, accounting for 50.8% of our FY17F forecast.
  • Smaller negative rental reversions, portfolio occupancy inches up to 98.6%.
  • A further c.38% of rental income to be renewed in 2HFY17 and FY18.
  • Enhancing value of portfolio through asset planning works and redevelopment.
  • Maintain Hold with a Target Price of S$2.11.

2Q performance lifted by better cost management

  • CT’s 2Q/1HFY17 DPU of 2.75 Scts/5.48 Scts is up 0.4%/0.2% yoy. after a retention of S$2.6m/S$13.4m respectively. The improvement was largely due to cost savings, thanks to lower utilities cost and maintenance expenses, despite the closure of Funan Mall in Jul 16 and slight negative portfolio rental reversion. 
  • Book NAV was revalued up to S$1.91/unit, owing to a 25-50bp cap rate compression.

Negative rental reversion narrows 

  • CT renewed 14% of its NLA in 1H17, of which an estimated 35% was during 2Q. The portfolio saw an average -1.6% in rental reversion, smaller than the -2.3% it experienced in 1Q, as it continued to re-juggle tenant mix at Bedok Mall and Westgate. 
  • Portfolio occupancy inched up to 98.6%. Meanwhile, shopper traffic grew 0.4% yoy while tenant sales remained relatively flat.

Still expecting muted reversion performance 

  • Looking ahead, we believe management would continue to strengthen its portfolio by managing its lease expiries and unlock value through asset enhancement initiatives or redevelopment activities. It has a remaining 8% and 29.6% of rental income to be renewed in 2HFY17 and FY18. 
  • While Singapore monthly retail sales have been improving yoy from Mar-May, the recovery has been modest at below 1% yoy. Hence, we think the ability to price rentals would remain anemic, at best.

Strengthening portfolio through AEIs and redevelopment 

  • The redevelopment of Funan is on track with 50% of piling works completed. An estimated 30% of the space has been pre-committed ahead of completion. The targeted 6.5% stabilised yield remains intact. 
  • In terms of AEIs, apart from completing enhancement works at Raffles City by 1Q18, the trust could also look at asset planning works for Westgate to enhance the long-term fundamental attractions of this property, given its strategic location within the Jurong area.

Maintain Hold 

  • We leave our FY17-19F DPU estimates unchanged and maintain our DDM-based target price of S$2.11. Retain our Hold call in view of the slow earnings growth trajectory over the next 2 years. 
  • Balance sheet remains strong with gearing at 34.7%. 
  • Key upside risk would be a recovery in consumer spending. Downside risks are worse-than-expected negative rental reversion.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-07-21
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.110 Same 2.110