CapitaLand Mall Trust - UOB Kay Hian 2019-10-22: 3Q19 Growth From Funan & Westgate; Upgrade To BUY

CAPITALAND MALL TRUST (SGX:C38U) | SGinvestors.io CAPITALAND MALL TRUST (SGX:C38U)

CapitaLand Mall Trust - 3Q19 Growth From Funan & Westgate; Upgrade To BUY

  • CAPITALAND MALL TRUST (SGX:C38U) reported good results with DPU increasing 4.8% y-o-y to 3.06 S cents in 3Q19.
  • Funan made its first full-quarter revenue contribution of S$12.5m. Westgate contributed revenue of S$18.8m after completing acquisition of the remaining 70% stake on 1 Nov 18.
  • We seek defensive shelter in CapitaLand Mall Trust due to heightened macro uncertainties. We lower our risk-free rate from 2.5% to 2.0% due to persistently low interest rates.
  • Upgrade to BUY and raise target price to S$2.88.


CMT 3Q19 RESULTS






Funan and Westgate contributed to stellar growth.

  • Gross revenue and NPI increased 17.9% and 17.6% y-o-y respectively in 3Q19. The good results were due to the first full-quarter contribution from Funan and the acquisition of the remaining 70% stake in Westgate, which was completed on 1 Nov 18.
  • Revenue contributions from Funan and Westgate were S$12.5m and S$18.8m respectively in 3Q19.

First full-quarter contribution from Funan.

  • Funan Mall officially opened on 28 Jun 19 after a 3-year redevelopment. The mall is an integrated development offering a synergistic combination of retail and office components, which appeals to many savvy consumers. Funan achieved high committed occupancy at 98.7% as at Sep 19.

Maintained positive rental reversion.

  • Overall occupancy was stable at 98.9% as at Sep 19 (Jun 19: 98.3%). CapitaLand Mall Trust achieved positive rental reversion of 1.2% on a portfolio basis in 3Q19 (2Q19: +1.8%).
  • Major contributors were IMM Building (+3.3%), Lot One Shoppers’ Mall (+3.0%) and Westgate (+3.4%). Retention rate was healthy at 83.3%. Shopper traffic grew 1.3% y-o-y in 9M19.


STOCK IMPACT


Continuous enhancements to rejuvenate portfolio.

  • CapitaLand Mall Trust has started asset enhancement initiatives (AEI) to rejuvenate Lot One Shoppers’ Mall this quarter. The cinema has undergone reformatting works to change the current four halls to eight new halls, and the library will be expanded and will feature new innovative learning experiences. The AEI is expected to be completed progressively from 2H20.

Intensified competition for consumer dollars.

  • The retail landscape looks set to face increased competition with the opening of three major malls in 2019, including Funan. Management aims to sustain DPU by maintaining a large and diversified tenant base that will be able to engage shoppers and enhance retail experience.

Driving sales through lifestyle and rewards programmes.

  • CapitaLand Mall Trust intends to work closely with mall tenants and make use of CapitaLand (SGX:C31)’s various programmes (CapitaStar, CapitaVoucher and CapitaCard) to boost sales performance at the malls.
  • CapitaStar, being the nation’s biggest multi-mall rewards platform, will allow CapitaLand Mall Trust to study shoppers’ spending patterns and preferences.
  • CapitaVoucher, which has gone digital this year, will offer its members 24/7 online facilities, such as bulk purchases and gift vouchers.

On the lookout for acquisitions.

  • CapitaLand Mall Trust is open to acquisitions locally and overseas. For Singapore, CapitaLand Mall Trust is looking for quality malls in close proximity to major population catchments or near popular tourist and shopping areas. For overseas markets, important considerations are yield spread on an after-tax basis and the presence of sponsor CapitaLand on the ground.


EARNINGS REVISION/RISK

  • We reduce our 2019 DPU forecast by 4.7% to factor in lease liabilities due to FRS 116.


VALUATION/RECOMMENDATION


Upgrade to BUY.



SHARE PRICE CATALYST

  • Positive newsflow on retail rentals and mall occupancy.
  • Asset enhancement initiatives.





Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2019-10-22
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.88 UP 2.650



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