CapitaLand Mall Trust - UOB Kay Hian 2020-03-27: Potential Beneficiary Of Stimulus Spending


CapitaLand Mall Trust - Potential Beneficiary Of Stimulus Spending

  • CapitaLand Mall Trust (SGX:C38U) benefits from the potential revival of the KL-Singapore HSR project, which is expected to be finalised in 2H20. It has three retail malls, namely IMM Building, JCube and Westgate, which are located adjacent to Jurong East MRT station and HSR terminus station. The three properties accounted for 18% of CapitaLand Mall Trust’s portfolio valuation as of 31 Dec 19.
  • CapitaLand Mall Trust provides an attractive 2020 dividend yield of 6.8% after correcting 24% on a ytd basis.
  • Maintain BUY but lower target price to S$2.72.


Jurong Gateway: Benefits from revival of HSR.

  • The 350km Kuala Lumpur (KL)- Singapore High Speed Rail (HSR), first mooted in 2010, provide seamless travel between KL and Singapore and cut travelling time to 90mins. The terminus stations will be located at Bandar Malaysia in Kuala Lumpur and Jurong East in Singapore. The Jurong East terminus will be accessible by four MRT lines, comprising the existing East-West and North-South Lines at Jurong East MRT station and upcoming Jurong Region Line and Cross Island Line. It will also be served by the Jurong East Integrated Transport Hub.
  • The HSR project has reached a critical juncture. Based on the HSR bilateral agreement, Malaysia has to bear the agreed costs incurred by Singapore if it does not proceed with the HSR project by 31 May 20 (date to commence construction). The HSR Express Service was scheduled to start running on 1 Jan 31.

Warmer ties between Malaysia and Singapore.

  • Political winds have changed with Muhyiddin Yassin taking over as Prime Minster of Malaysia. The new government intends to expedite infrastructure projects to shore up economic growth and overcome negative impact from the COVID-19 outbreak. The new Malaysian government is expected to embark on stimulus spending to meet target GDP growth of 4.8% for 2020.
  • The previous government under Pakatan Harapan (PH) had already revived the RM140b Bandar Malaysia project, which houses a HSR terminus station, in Dec 19. The business case for the HSR project is compelling as it bolsters growth at Iskandar Puteri, Batu Pahat and Muar located within Johor (three out of eight stations located within the State of Johor). With improved bilateral relationship between the two countries, the stalled HSR project could be brought back on track again.
  • Our Malaysian construction analyst Farhan Ridzwan expects the new Malaysian government to expedite and roll out mega projects with significant multipliers. In his latest update on 19 Mar 2020, he expects the RM60b HSR project to be finalised in 2H20.


Prime beneficiary of KL-Singapore HSR.

  • CapitaLand Mall Trust is the prime beneficiary of the KL-Singapore HSR. Its three retail malls IMM Building, JCube and Westgate, located within Jurong Gateway and adjacent to Jurong East MRT station, accounted for 18% of CapitaLand Mall Trust’s portfolio valuation as of Dec 19.

Downtown malls accounted for 52% of CMT's portfolio valuation, vs 48% for suburban malls.

  • Its downtown malls, such as Raffles City Singapore (City Hall MRT Station), Funan (City Hall MRT Station), Plaza Singapura (Dhoby Ghaut MRT Station), Bugis Junction (Bugis MRT Station), Bugis+ (Bugis MRT Station) and Clarke Quay (Clarke Quay MRT Station), are co-located with major transportation nodes.

Enhancing social distancing amidst COVID-19 outbreak.

  • Singaporeans have avoided crowded places and non-essential gatherings to minimise the risk of contagion. Shopper traffic at downtown malls and suburban malls have shrunk by 50% and 30-35% respectively when the DORSCON level was raised from Yellow to Orange on 7 Feb 20. Since then, shoppers have adapted and gradually returned to its retail malls.
  • To prevent the spread of COVID-19, the government has closed all bars and entertainment venues due to high risk of transmission. Retail malls, where contact is more transient, remain open. However, operating capacities have to be reduced to ensure there is 16sqm of useable space per person. There should be at least 1m physical spacing between patrons, including queue and waiting areas. Food and beverage outlets must arrange tables and seating to ensure separation of at least 1m between tables or different groups of diners.

Relief package for COVID-19.

  • CapitaLand Mall Trust will release a 1-month security deposit to offset rental payments for the month of Mar 20, which will ease cashflows for all its tenants. CapitaLand Mall Trust will pass on in full the 15% property tax rebate granted by the Government under Budget 2020 to its tenants, which is equivalent to a one-time rental rebate of up to half a month. This will be completed in phases during April and May (target retailers most affected by COVID-19 outbreak).

The quest for scale and resiliency.

  • The proposed merger of CapitaLand Mall Trust and CapitaLand Commercial Trust (SGX:C61U) creates a diversified commercial REIT with increased scale to pursue acquisitions and integrated developments. CapitaLand Integrated Commercial Trust (CICT) will be anchored in Singapore with overseas exposure capped at 20%. It intends to focus on developed markets, such as Europe and Japan.
  • If the merger is approved and completed, CapitaLand Mall Trust will morph into the third-largest REIT in the Asia Pacific region and the best proxy for S- REITs. The acquisition is accretive to CapitaLand Mall Trust’s DPU by 1.6% and enhances CapitaLand Mall Trust’s NAV per share by 1.9%.


  • We cut our forecast for 2020 DPU by 5.2% to 12.65 S cents. CapitaLand Mall Trust will benefit from full-year contribution from Funan in 2020 (contributed rental income of S$27.6m in 2H19).
  • We see Clarke Quay most affected by closures of bars and entertainment venues. We have assumed occupancy at its Clarke Quay property to drop from 100% to 90% by 4Q20.



Jonathan KOH CFA UOB Kay Hian Research | Peihao LOKE UOB Kay Hian | https://research.uobkayhian.com/ 2020-03-27
SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.72 DOWN 2.880