CapitaLand Retail China Trust - OCBC Investment 2017-10-24: Results Within Expectations

CapitaLand Retail China Trust - OCBC Investment 2017-10-24: Results Within Expectations CAPITALAND RETAIL CHINA TRUST AU8U.SI

CapitaLand Retail China Trust - Results Within Expectations

  • 3Q DPU up 0.4% YoY.
  • Catalyst at Wangjing.
  • FV increases to S$1.61.

3Q17 results within expectations 

  • CapitaLand Retail China Trust's (CRCT) 3Q17 results were within expectations. 
  • 3Q17 revenue increased 10.6% YoY to S$56.0m, mainly due to new contribution from CapitaMall Xinnan which outweighed the divestment of CapitaMall Anzhen. Similarly, 3Q17 NPI increased 9.7% YoY to S$36.0m or 22.0% of our full-year forecast. 
  • 3Q17 DPU increased 0.4% YoY to 2.37 S cents or 22.0% of our initial full-year forecast (which includes an assumed capital distribution top-up from CRCT for the Anzhen divestment).
  • 9M17 DPU came to 7.73 S cents or 72.2% of our full-year forecast. Without the assumption of this top-up, the 3Q17 DPU of 2.37 S cents would have made 22.8% of our full-year forecast.

Leasing demand strong for Wangjing Lvl 4 

  • Going forward, we expect greater contributions from CapitaMall Wangjing from 2Q18 onwards as the proportion of non-anchor NLA increases from 50% to 60%. 
  • On another note, contributions from CapitaMall Minzhongleyuan have been fairly volatile as it continues to undergo trade mix adjustments – with the asset clocking NPI of RMB 1.0m in 1Q17, RMB 2.5m in 2Q17, and RMB 0.3m in 3Q17. While the asset is relatively small, we had initially expected a more robust gain in contributions post the opening of the Zhongshan Avenue. 
  • We believe that these adjustments may take longer than we initially expected and make changes to our assumptions accordingly.

Maintain HOLD 

  • CRCT recorded a resilient portfolio occupancy of 95.6%, clocking a healthy rental reversion of 7.5% in 3Q17. We previously assumed that there will be a top-up from the Anzhen divestment proceeds for any lost income due to the disposal in FY17 and FY18, but have now adjusted our DPU forecasts to assume no top-up to be conservative. 
  • We expect more clarity on any potential capital distribution next quarter. We continue to be positive on CRCT’s long-term prospects, though current unit prices could be more compelling. 
  • According to the National Bureau of Statistics of China, China’s economy expanded 6.8% YoY in 3Q17 to RMB 59.3t while retail sales increased 10.4% YoY to RMB 26.3t.
  • After rolling our estimates forward, our fair value estimate increases from S$1.59 to S$1.61.
  • Maintain HOLD.

Deborah Ong OCBC Investment | http://www.ocbcresearch.com/ 2017-10-24
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 1.61 Up 1.590