CapitaLand Retail China Trust - OCBC Investment 2018-07-30: I’m Gonna Stop Shopping For Now

CapitaLand Retail China Trust - OCBC Investment Research 2018-07-30: I’m Gonna Stop Shopping For Now CAPITALAND RETAIL CHINA TRUST SGX:AU8U

CapitaLand Retail China Trust - I’m Gonna Stop Shopping For Now

  • CRCT’s 2Q18 DPU up 0.8% y-o-y.
  • RMB weakness is main concern.
  • Fairly valued as at 27 Jul.

2Q results within expectations

  • CapitaLand Retail China Trust’s (CRCT) 2Q results were within expectations.
  • 2Q18 NPI fell 8.7% in RMB terms mainly due to the divestment of CapitaMall Anzhen and lower contributions from CapitaMall Grand Canyon, while NPI fell only 5.9% in SGD terms to S$37.6m due to the stronger RMB. This was offset by increased distributable income contribution from the Rock Square joint venture as well as a partial distribution of gains from the Anzhen divestment.
  • 2Q18 DPU increased 0.8% y-o-y to 2.64 S cents or 25.4% of our initial full-year forecast, which we consider within our expectations.

~ SGinvestors.io ~ Where SG investors share

RMB weakness remains a concern, but accounted for in our projections

  • Given the trade tensions between the US and China, we do note that CRCT stands to be negatively impacted by any weakening in RMB against SGD. Management revealed that currently half of the expected distributable income has been hedged, which offers some protection against a further weakening of the yuan.
  • Given that the average exchange rate in 1H18 was 1 RMB = 0.208 SGD, and that the rate stands at around 1 RMB = 0.200 SGD as of 27 Jul, we believe our FY18 assumption of 1 RMB = 0.202 SGD remains sufficiently conservative for now.

Progress continues at Rock Square and Wangjing

  • Rock Square posted impressive rental reversions of 24.3% during the quarter.
  • Wangjing also posted positive rental reversions of 14.1% for the quarter, and we remain optimistic that the AEI on Level 4 will help drive footfall and support further rental reversions for the leases to expire in 2H18 (~19.8% of total rental income).

Fairly priced as at 27 Jul price levels

  • CRCT’s share price has increased 4.0% in less than a month, since we re-iterated our Buy call on 3 Jul (see report: CapitaLand Retail China Trust - Tariff Or Not, I Still Need To Shop). We believe CRCT’s current price as at 27 Jul’s close is undemanding but see only single-digit upside from here.
  • Given the rising interest rate environment, we increase our cost of equity from 8.0% to 8.5%. After adjustments, our fair value estimate decreases by 5% from S$1.64 to S$1.55.
  • We downgrade CRCT from Buy to HOLD.

Deborah Ong OCBC Investment Research | https://www.iocbc.com/ 2018-07-30
SGX Stock Analyst Report HOLD Downgrade BUY 1.55 Down 1.640