CapitaLand Mall Trust - UOB Kay Hian 2018-01-25: 4Q17 Results Of CMT Above Expectation

CapitaLand Mall Trust - UOB Kay Hian 2018-01-25: 4Q17 Results Of CMT Above Expectation CAPITALAND MALL TRUST C38U.SI

CapitaLand Mall Trust - 4Q17 Results Of CMT Above Expectation

  • CMT’s results came in ahead of our expectations, mainly due to higher-than-expected contributions from Bugis Junction and Atrium@Orchard. 
  • Maintain HOLD with a target price of S$2.04.

CapitaLand Mall Trust (CT SP/HOLD/S$2.08/Target:S$2.04) 

Results exceeded our and consensus expectations; maintain HOLD with an unchanged target price of S$2.04, based on DDM (required rate of return: 6.7%, terminal growth: 2.0%). 

  • CapitaLand Mall Trust (CMT) posted 4Q17 DPU of 2.90 S cents, up 0.7% y-o-y and 4.3% q-o-q. 4Q17 gross revenue was up 1.8% y-o-y (also up by 1.8% q-o-q), while NPI grew by 2.6% y-o-y (down 1.7% q-o-q) due to higher occupancies for Bugis Junction and The Atrium@Orchard as well as higher carpark income, partially offset by lower gross revenue from Bedok Mall (due to lower rental rates achieved for new and renewed leases and lower occupancies).
  • For 2017, gross revenue was down marginally by 1.1% y-o-y, mainly due to Funan mall having ceased operations for redevelopment from 1 Jul 16, lower rental rates achieved for new and renewed leases, as well as lower occupancies for Bedok Mall, although these were partially offset by higher rentals achieved from IMM Building, JCube, and Clark Quay. 
  • The results were above our expectations, with 2017 DPU representing 109.0% of our full-year estimate.
  • Shopper traffic remained stable at about 350m with a marginal decline (-0.3% y-o-y) in 2017, excluding Funan. Tenants' sales per month also remained unchanged y-o-y at around S$85psf pm.

Occupancy remained healthy. 

  • Portfolio-wide occupancy improved marginally to 99.2% (3Q17: 99.0%), with the exclusion of Funan. Clark Quay (+2.2%) and IMM (+1.6%) saw pick-ups in their occupancies.
  • Tenants’ sales led by Music & Video and Leisure & Entertainment, which saw the greatest 2017 y-o-y growth of 24.8% and 16.9% respectively. 
  • The Leisure & Entertainment segment was boosted by Zouk’s opening last year, as well as higher spending on movies and food (reflecting more positive sentiments by consumers on the economy). The electrical and electronics segment also did well, growing 15.6% y-o-y, despite the advent of online e-commerce. 
  • Management alluded that brick-and-mortar players still competed effectively against online retailers, by going on the volume-play route at thinner margins.
  • CMT has also helped these electronic retailers trade well, by offering them the big atrium spaces in its malls and timing their marketing at malls in areas with high residential completions.
  • In terms of declines in 2017, toys & hobbies, gifts & souvenirs sales and supermarket segment dipped the most at 15.4%, 13.2% and 7.2% y-o-y declines, respectively. In particular, supermarkets sales were hit by sales leakages, from more Singaporeans crossing the border into Malaysia for their grocery shopping.

Negative rental reversion of 1.7% in 2017. 

  • The negative portfolio rental reversion was attributed to Westgate (-10.2%), Bedok Mall (-6.5%), Tampines Mall (-3.2%), Clark Quay (-1.9%) and Raffles City (-1.5%). T
  • ampines Mall saw a change of trade mix, with a bank tenant being converted to a F&B operator, which typically brings in less rents (due to lower gross margins in F&B). 
  • For Clark Quay, management is excited to bring in a new operator from Hong Kong with attractive rents extended. Although bringing in certain trades like fashion and apparel could boost rent reversions (due to higher gross margins in the trade), management also shared that their view is to balance between getting the best-paying customers vs brining in new concepts to enhance competitiveness of malls.

Weakness in rentals, amid signs of stabilisation. 

  • Prime retail rents in Orchard Road and Suburban stabilised at S$31.30 (0%qoq, -2.6% y-o-y) and S$28.80 psf/mth (0% q-o-q, - 1.9% y-o-y) respectively, according to CBRE. They noted that retail rents have not seen any significant recovery, while they expect supply of another 1.28m sf and 1.11m sf of retail space to come on-stream in 2018 and 2019 and be absorbed. 
  • The sector is poised for a recovery, if improvements in retail sales, receipts, and tourist arrivals persist.

Funan construction in good progress, attracting strong leasing interest. 

  • With the strong momentum in construction progress, management hinted that its completion could be ahead of the targeted 4Q19. The development has also attracted strong leasing interest. 
  • The retail segment has reached a pre-committed occupancy of close to 40%, while the office segment which has just started leasing has reached 16% (and can be quickly ramped up with a few key tenants).

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | http://research.uobkayhian.com/ 2018-01-25
UOB Kay Hian SGX Stock Analyst Report HOLD Maintain HOLD 2.040 Same 2.040