CapitaLand Retail China Trust - OCBC Investment 2019-10-30: Look Forward To Growth From Newly Acquired Malls


CapitaLand Retail China Trust - Look Forward To Growth From Newly Acquired Malls

Results within expectation

  • In SGD terms, CAPITALAND RETAIL CHINA TRUST (SGX:AU8U)’s 3Q19 gross revenue increased by 7.5% y-o-y to S$59.5m and NPI rose 11.9% y-o-y to S$41.1m.
  • In RMB terms, gross revenue grew by 9.8% y-o-y while NPI was up 14.4% y-o-y. The growth was driven by higher rental growth from existing malls, as well as contribution from the newly acquired CapitaMall Xuefu, CapitaMall Yuhuating and CapitaMall Aidemengdun (with 1 month of revenue contribution in 3Q). See Capitaland Retail China Trust Announcements.
  • CapitaLand Retail China Trust’s 3Q19 DPU increased by 0.8% y-o-y to 2.43 S cents or 24% of our initial full-year forecast while 9M19 DPU came up to 7.56 S cents or 75.0% of our full-year forecast, which we consider to be within our expectations. See Capitaland Retail China Trust Dividend History.

Xizhimen and Rock Square continued to shine

  • CapitaLand Retail China Trust's portfolio occupancy remained high at 97.1%. Growth in shopper traffic and tenant sales was 8.3% y-o-y and 11.8% y-o-y respectively, mainly driven by growth from the newly acquired malls. For the quarter, rental reversions for the portfolio remained strong at +7.4% with 143 new leases signed in 3Q19 (3.3% total NLA).
  • We are encouraged by CapitaMall Xizhimen and Rock Square’s performances which saw impressive positive rental reversions of 10.8% and 54.0%, respectively.
  • On the other hand, Qibao and Minzhongleyuan’s remained challenged. Rental version of Qibao was -10.9% y-o-y while Minzhongleyuan was down 2.9% y-o-y due to stiff competitions from surrounding malls. Management is currently trying to reposition these 2 malls i.e adding more F&B stalls to attract traffic, but is also open to a divestment option for Mingzhongleyuan.
  • Looking ahead, CapitaLand Retail China Trust will continue its portfolio reconstitution strategy to divest underperforming malls to unlock values for further acquisition opportunities.

RMB depreciation remains a concern but accounted for in our projections

  • We find recent operational figures reassuring and expect full quarter contribution from the recently acquired malls in 4Q. But we do note that CapitaLand Retail China Trust stands to be negatively impacted by any weakening in RMB against SGD. Currently, 50% of the expected distributable income has been hedged, which offers some protection against a further weakening of RMB.
  • After updating our model to account for the acquisitions, and tweaking our exchange rate assumptions from 1RMB = 0.202 SGD to 1RMB =0.198 SGD and 1RMB to 0.196 SGD for FY19 and FY20, our fair value estimate from S$1.45 to S$1.62.
  • (See Capitaland Retail China Trust Share Price; Capitaland Retail China Trust Target Price)

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2019-10-30
SGX Stock Analyst Report BUY UPGRADE HOLD 1.62 UP 1.450