CapitaLand Mall Trust - RHB Invest 2019-07-24: Stable Performance But Valuations Are Lofty


CapitaLand Mall Trust - Stable Performance But Valuations Are Lofty

  • NEUTRAL, Target Price rises to SGD2.38 from SGD2.20, 10% downside with 4.5% FY19F yield.
  • CapitaLand Mall Trust's 2Q19/1H19 results are in line. Positive takeaways are its stable operational performance and Funan’s healthy occupancy rate.
  • While retail supply is expected to slow down, challenges remain in terms of sluggish retail sales, changing consumer trends and e-commerce growth. As such, we believe its share price has run ahead of fundamentals, driven by liquidity and the hunt for yields.
  • We recommend that investors wait for a pullback.

Rental reversions still positive; opening of Jewel Changi had a mild negative impact on its eastern Singapore malls.

  • CAPITALAND MALL TRUST (SGX:C38U)’s management noted that Tampines Mall’s and Bedok Mall’s shopper traffic and tenant sales (particularly food & beverage sales) were negatively impacted (high single-digit drop) immediately after Jewel Changi opened. The operating performance of its two abovementioned malls has since stabilised and picked up slightly, after Jewel Changi’s novelty factor dissipated.
  • Overall, its mall portfolio registered a slight positive rental reversion of 1.8% for 1H19. Tenant sales, however, continued to decline by 0.9% y-o-y – which is a cause for concern. Portfolio occupancy rate also dipped 0.5ppt q-o-q to 98.3%, mainly due to some transitional vacancies at Clarke Quay.

Retail sales remain sluggish but the supply threat is fading away.

  • May retail drop in April. We expect retail sales to remain under pressure for the rest of the year, with ongoing trade tensions continuing to weighing on the local economy.
  • On the positive three years – which should provide some respite for landlords.

Funan contributions to kick.

  • Funan, which reopened in 28 mall to be SGD12- 14psf, and office rental rates at SGD8-10psf. Management guided that the yield-on-cost is estimated at about 6% (including serviced residence divestment gains).

Gearing at 34% in the near term.

  • CapitaLand Mall Trust is keen to look at Jewel Changi if the sponsor chooses to divest its stake. It is also open to overseas asset acquisitions. Asset enhancement plans are in place for Lot One Shoppers’ Mall (estimated capex: SGD15-20m).
  • CapitaLand Mall Trust has also identified about four malls that it believes has development potential, based on Urban Redevelopment Authority’s draft masterplan for 2019.

Target Price adjustments.

  • We cut our COE assumption by 20bp to 6.9% to better reflect the prolonged low-interest rate environment, and lift terminal growth to 1.75% (from 1.5%).

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-24
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 2.38 UP 2.200