Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2017-08-30: Oversold; Buy Now On Dip

LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - Oversold; Buy Now On Dip

In our last report (see report: Lippo Malls Indo Retail Trust (LMIRT) - A Few Hiccups Ahead) , we noted that the land leases for Java Supermall units and the Mall WTC Matahari units were due to expire on 24 Sept 2017 and 8 April 2018, respectively. Together, the assets made up 0.8% of LMIRT’s portfolio valuation as at end-2016 and contributed 1.9% of NPI in FY16.
To be conservative in our valuations, we had assumed that these leases would not be renewed.
Since then, LMIRT has announced that the HGB title for the underlying land of the Java Supermall units has been extended and LMIRT’s strata title certificates are now registered till 24 Sept 2037. We make adjustments to our valuation accordingly.
As for LMIRT’s Mall WTC Matahari units, we believe that any announcements regarding the leases will be made ~2 months before its current expiry next year.

According to the Bank Indonesia Retail Sales survey, the Real Sales Index (RSI) climbed rose 6.3% YoY in Jun on the back of both food and non-food items.
Indonesia’s GDP grew 5.01% YoY in 2Q17. Although the figure was slightly lower than expectations, we see this as a moderately healthy growth rate. Given President Widodo’s promise to bring GDP growth up to 7% before 2019, we believe the central bank may employ more monetary easing, which would be a boon for private spending.
As mentioned previously, we find LMIRT’s long-term growth story compelling given its exposure to Indonesia’s urbanization and rising middle-class expenditures.

After the adjustments above, our DDM-based fair value increases from S$0.45 to S$0.455. Our fair value of S$0.455 is currently ~6% above LMIRT’s last closing price and the REIT is trading at a FY17F dividend yield of 7.9%.
Given that other retail S-REITs are trading at dividend yields up to 270 bps lower (ranging from 5.2% to 6.7%), we believe that LMIRT has once again become an attractive opportunity for investors at current unit price levels.
We upgrade LMIRT from a Hold to a BUY with a fair value of S$0.455.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-08-30

OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 0.455 Up 0.450