CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)
CapitaLand Retail China Trust - Value-enhancing Tweaks To Portfolio
- Operating results remain stable amidst competition.
- Newly completed acquisitions to drive DPUs going forward.
- Remains on the hunt for more assets.
BUY; Target Price of S$1.80.
- CAPITALAND RETAIL CHINA TRUST (SGX:AU8U) continues to trade at an attractive FY20F yield of 6.6% – similar to its post-listing historical mean, which offers value compared to many S-REITs that are trading at -1SD yield. See Capitaland Retail China Trust Share Price; Capitaland Retail China Trust Dividend History.
- Maintain BUY and Target Price of S$1.80, with further upside if CapitaLand Retail China Trust’s success in driving value-add at Rock Square can be replicated in Harbin and Changsha.
Stable operating results drive performance
- In SGD terms, CapitaLand Retail China Trust reported a 7.5% and 11.9% rise in gross revenues and 11.9% rise in gross revenues and net property income (NPI) to S$59.5m and S$41.1m respectively. On a YTD basis, gross revenues and net property income came in 2.2% and 8.7% higher at S$170.6m and S$121.3m respectively. Distributable income came in at S$26.9m (3Q19) and S$77.2m (inclusive of S$1.0m capital distribution) translating into a DPU of 2.43 Scts for the quarter (+4.3% y-o-y) and 7.56 Scts (9M19). Its 9M19 DPU forms 74% of our full-year estimates. See Capitaland Retail China Trust Announcements.
- In RMB terms, 3Q19 gross revenues and net property income (NPI) rose by 9.8% y-o-y and 14.4% to RMB300.9m and RMB208.0m respectively. YTD 9M19 revenues and net property income came in 7.5% and 11.9% higher. The increased momentum seen in 3Q19 was mainly attributable to the contribution from the acquisitions of CapitaMall Xuefu, Aidemengdun and Yuhuating, which contributed a partial quarter revenues.
- On a same-store basis, revenues and net property income rose by 1.0% and 6.3% respectively. The improvement came portfolio-wide with most of its malls reporting better operational cashflows, even for CapitaMall Minzhongleyuan where it remains profitable despite the dip in revenues and net property income.
Strong operating results continue to support operations
- The portfolio continued to deliver stable occupancy rates of 97.1% (97.0% in 2Q19), with average rental reversions of 7.4% with its key mall Xizhimen reporting a strong 10.8% lift in rents. Noteworthy is a 10.9% dip in revenues in Qibao and 5.9% dip at Xinnan which are due to ongoing tenant remix in order to achieve longer-term operational sustainability amidst competition from other malls.
- CapitaMall Minzhongleyuan continued to see a dip in rental reversions of -2.9% and -7.3% (9MFY19) due to continued competition but we note that the negative rental reversions are tapering off, a good sign in our view.
- CapitaLand Retail China Trust’s strong operating record was maintained during the quarter with tenants’ sales and shopper traffic up 8.3% and 11.8% respectively. On a YTD 9M19 basis, tenants’ sales and shopper traffic are up 7.3% and 8.4% respectively.
- Stripping off the numbers from the new malls, tenants’ sales in 3Q19 would have been 2.0% higher and up 2.7% YTD 9M19, indicating healthy metrics.
Update estimates.
- We have reviewed our estimates and have tweaked down our forecasts for Mingzhongleyuan (occupancy rate tweaked down to c.65%) and also our forecasts for capital distribution after two quarters of non-payment. Our DPU estimates are therefore revised down by 1-5% for FY19-21F.
- Our Target Price is maintained at S$1.80 as we roll forward our valuations to FY20. At its current price, CapitaLand Retail China Trust offers a yield of 6.5%. See Capitaland Retail China Trust Share Price; Capitaland Retail China Trust Dividend History.
Where we differ:
- Our Target Price is at the higher end of consensus estimates as we believe new acquisitions have higher growth potential. With a visible pipeline from the sponsor, we believe that it is an opportune time for CapitaLand Retail China Trust to look at acquisitions. See Capitaland Retail China Trust Target Price
- Aided by an active asset reconstitution strategy, CapitaLand Retail China Trust continues to realise value for investors and proceeds can be deployed to value-accretive deals, which we believe could lead to higher earnings momentum.
Derek TAN
DBS Group Research
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Rachel TAN
DBS Research
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https://www.dbsvickers.com/
2019-10-29
SGX Stock
Analyst Report
1.800
SAME
1.800
