CapitaLand Retail China Trust - OCBC Investment 2017-09-15: Trading At 7.1% FY18F Dividend Yield

CapitaLand Retail China Trust - OCBC Investment 2017-09-15: Trading At 7.1% FY18F Dividend Yield CAPITALAND RETAIL CHINA TRUST AU8U.SI

CapitaLand Retail China Trust - Trading At 7.1% FY18F Dividend Yield

  • Sponsor’s omni-channel strategies.
  • Recent strength in RMB.
  • Fair Value Estimate raised to S$1.59.

Sponsor working towards an O&O future 

  • We note that CapitaLand Retail China Trust's (CRCT) sponsor, CapitaLand, has been actively advancing its omni-channel or offline-and-online (O&O) strategy. 
  • In China, CapitaLand has signed an agreement with Alibaba to manage the Alibaba Shanghai Center, which includes a shopping podium. 
  • In addition, the group has launched its first smart mall, CapitaMall Xinduxin in Qingdao, China. 
  • In Singapore, the sponsor is working with Lazada to offer O&O solutions for shoppers. For instance, shoppers may now collection and return their parcels using click-and-collect lounges at Plaza Singapura and Bugis+. 
  • We believe CapitaLand’s experimentation with O&O integration places CRCT in an advantageous position in the longer run as such O&O solutions may be replicated across its own portfolio.

A look at catalysts for CRCT's DPU growth 

  • Going forward, we see a couple of positive catalysts for CRCT’s DPU growth. 
  • Contributions from CapitaMall Wangjing are expected to increase from 2Q18 onwards as it enlarges its proportion of non-anchor NLA from 50% to 60%, following the recovery of space from BHG. 
  • The recovery in CapitaMall Minzhongleyuan, following the reopening of Zhongshan Avenue and commencement of Metro Line 6 in Wuhan, is also expected to result in higher contributions, albeit not as quickly as initially expected; the management has been taking caution in selecting the right tenant mix for the long-term success of the asset. 
  • On the other hand, there will be a loss in income contribution following the divestment in CapitaMall Anzhen. Note that CapitaMall Anzhen contributed 10.0% of NPI in FY16, and 8.4% in 1H17. As of now, we assume that there will be a top-up from the Anzhen divestment proceeds in 4Q17 and FY18 for any lost income due to the disposal. 
  • Since our last report on 28 Jul (see report: CapitaLand Retail China Trust (CRCT SP) - 2Q Results In Line, MZLY Turnaround, Bye-bye Anzhen ), the Chinese Yuan (RMB) has sustained an impressive rally. After updating our FY17 average RMB exchange rate from 1 RMB = 0.204 SGD to 1 RMB = 0.205 SGD as well as tweaking our FY18 to FY20 currency assumptions, our fair value estimate increases from S$1.55 to S$1.59. 
  • Against yesterday’s closing price, CRCT is currently trading at a 6.6% FY17F dividend yield and a 7.1% FY18F yield. Maintain HOLD with a higher fair value of S$1.59.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-09-15
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.590 Up 1.550