CapitaLand Retail China Trust - OCBC Investment 2020-02-10: Potential Headwinds From Coronavirus


CapitaLand Retail China Trust - Potential Headwinds From Coronavirus

Results within expectations

  • CapitaLand Retail China Trust (SGX:AU8U)'s 4Q19 results were within expectations. Revenue rose 21.2% y-o-y to S$67.6m while NPI was up 22.9% to S$44.1m, boosted by the first full-quarter contribution from newly acquired CapitaMall Xuefu, CapitaMall Yuhuating and CapitaMall Aidemengdun, but partially offset by lower revenue from CapitaMall Erqi due to pre-termination of its anchor tenant as well as a one-off compensation recorded in CapitaMall Wuhu which was divested in Jul 2019. See Capitaland Retail China Trust Announcements.
  • 4Q19 DPU after capital distribution was down 3.3% y-o-y to 2.34 S cents on an enlarged share base while FY19 DPU fell 3.1% to 9.90 S cents or 99.9% of our full-year forecast. See Capitaland Retail China Trust Dividend History.

FY19 rental reversion stood at 6.4%

  • As at 31 Dec 2019, portfolio occupancy remained high at 96.7%. For 4Q19, shopper traffic and tenant sales grew 36.7% y-o-y and 31.0% y-o-y respectively.
  • Rental reversion for the portfolio was +4.7% (down 2.7 ppt from +7.4% in 3Q) in 4Q, dragged by CapitaMall Minzhongleyuan, Xinnan, Qibao and Xuefu.
  • On the other hand, CapitaMall Xizhimen and Rock Square continued to drive impressive positive rental reversions of 10.5% and 26.1%, respectively. Full-year rental reversion was +6.4%.
  • Looking ahead, leases representing 34.9% of the portfolio’s gross rental income will expire in 2020 and 23.4% in 2021.
  • CapitaLand Retail China Trust announced the divestment of CapitaMall Erqi at 20.5% above its last valuation. The divestment is expected to be completed in 3Q20 with net proceeds of ~S$153.5m.

1 mall in Wuhan is closed; remaining 12 malls are operating at shorter operating hours

  • In light of the novel coronavirus situation in China, CapitaMall Minzhongleyuan (0.4% of 4Q19 NPI) in Wuhan is closed since 29 Jan 2020 and will reopen when local conditions permit. CapitaLand Retail China Trust’s remaining 12 malls in China continue to operate but at shorter operating hours in-line with local government’s guidelines.
  • Management saw a significant drop in traffic during CNY period this year and will likely to see a clearer picture after the CNY holiday when more people return to work. Given the on-going coronavirus situation in China, we could see dampened sentiment and continued declines in shopper traffic and tenants’ sales in 1H20, which would pressure CapitaLand Retail China Trust’s overall performance.
  • See Capitaland Retail China Trust Share Price; Capitaland Retail China Trust Target Price; Capitaland Retail China Trust Analyst Reports; Capitaland Retail China Trust Latest News.
  • After factoring in the divestment of CapitaMall Erqi and the impact of the coronavirus, our FY20F and FY21F DPU are revised down 2% and 5% respectively. As such, our Fair Value estimate decreases from S$1.62 to S$1.57.

Chu Peng OCBC Investment Research | https://www.iocbc.com/ 2020-02-10
SGX Stock Analyst Report HOLD DOWNGRADE BUY 1.57 DOWN 1.620