Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2018-02-15: Gone To The Barber’s

Lippo Malls Indo Retail Trust (LMIRT) - OCBC Investment 2018-02-15: Gone To The Barber’s LIPPO MALLS INDO RETAIL TRUST D5IU.SI

Lippo Malls Indo Retail Trust (LMIRT) - Gone To The Barber’s

  • 10% hair cut for rights issue overhang.
  • Headlines versus DPU impact.
  • Fair Value decreases to S$0.405.

4Q17 results within expectations 

  • Lippo Malls Indo Retail Trust’s (LMIRT) 4Q17 results were within expectations. 4Q17 gross rental income increased 8.3% y-o-y in IDR terms but only 1.5% y-o-y in SGD terms, due to the weakened rupiah. Recall that LMIRT has foreign currency options contracts to mitigate its exposure to on currency movement. 
  • 4Q17 DPU fell 9.8% y-o-y to 0.79 S cents, mainly due to one-off ~S$0.5m increase in administrative expenses due to the change in trustee as well as narrower gains from currency hedges due to the weakened rupiah. 
  • Altogether, FY17 revenue increased 5.0% to S$197.4m or 100.4% of our forecast, while FY17 DPU ended flat at 3.44 S cents or 99.4% of our forecast.

Things not great, but not that bad 

  • A few challenges have cropped up in the past half-year: the renewal of master leases at the retail spaces, the potential of a rights issue, the low underlying rents at Kemang, a sudden selldown in the unit price on 27 Nov, the Moody’s review announced on 21 Dec, and more recently rupiah weakness which has hit hedging gains.
  • Except for the potential rights issue, these details have by and large been factored into our assumptions. 
  • Despite the negative newsflow in the past few months, the impact of these issues on our DPU forecasts has been less significant than what headlines might suggest. Altogether, we now forecast a DPU growth of -3.2% in FY18F, and -1.5% in FY19F.

Prospect of potential rights issue continues to weigh on REIT 

  • Nonetheless, we recognize that the negative sentiment related to a potential rights issue will continue weigh on the REIT, as investors may be unwilling to accumulate additional units in the interim. Given this overhang as well as the absence of near-term catalysts, we have decided to apply a 10% discount to arrive at a fair value of S$0.405, down from our previous fair value of S$0.460. 
  • In our view, it is likely that the rights issue, if any, will not be held at least within the first half of this year. 
  • As of 14 Feb’s close, LMIRT is trading at FY17 (actual) yield of 8.6% and a FY18F yield of 8.3%. 
  • We downgrade LMIRT from Buy to HOLD with a fair value of S$0.405.

Deborah Ong OCBC Investment | http://www.iocbc.com/ 2018-02-15
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 0.405 Down 0.460