Saturday, March 31, 2012

Fortune Real Estate Investment Trust: HK retail sales up for Jan, Feb 2012 (OCBC)

For the first two months of 2012, HK retail sales climbed by 15.2% YoY to HK$77.0b. Jan sales had been up 14.9% YoY while Feb sales were even more bullish with an increase of 15.7% YoY despite Chinese New Year falling in Jan instead of Feb this year. The continuing growth in sales, coming on the back of a 25% jump in 2011 vs. 2010, should continue to support an increase in average retail rents. We believe that rents will grow given that the economies of HK and mainland China continue to expand. China is also currently maintaining its tariffs on luxury imports into the mainland, thus helping to support prime retail rents in HK and the cascade effect on suburban retail mall owners like Fortune. We maintain our BUY rating and HK$4.88 fair value.

Retail sales grow
Provisional statistics for Feb retail sales in HK were released yesterday. We note that the retail sales figure for Feb (+15.7% YoY to HK$33.8b) grew faster than that for Jan (+14.9% YoY to HK$43.2b), which is encouraging especially since Chinese New Year fell in Jan instead of Feb this year. On a combined basis, for the first two months of 2012, HK retail sales climbed by 15.2% YoY. Adjusting for inflation, the volume of sales climbed 9.5% YoY. An official commented that going forward, improved incomes and good inbound tourism should still be positive for the retail business in the near term.

Expanding China and HK economies
We note that Bloomberg’s consensus estimates for real GDP growth for China and HK in 2012 are still highly encouraging at 8.3% and 3.0% respectively. For 2014, the figures are even better at 8.4% and 4.5%. In HK, the unemployment rate is forecasted to increase only slightly from 3.46% in 2011 to 3.6% for this year.

Import tariffs in Mainland China aid HK
In 2011, there were 42m tourists to HK, which has a population of only 7m. 28m of the tourists were from the mainland. Mainland China’s import tariffs on luxury goods, of up to 30-60%, are considered a reason for the strong retail sales growth and high rents at prime locations in HK, which help support suburban retail rents, benefiting players like Fortune REIT. Earlier this month, a former deputy Minister of Commerce said that there will be two rounds of cuts to the tariffs this year, but the Ministry of Finance has defended the current rates. While the tariffs remain as they are, HK is still a beneficiary.

Maintain BUY
Fortune is trading at a P/B of 0.5x and an est. FY12 dividend yield of 7.2%. We maintain our BUY rating and a HK$4.88 fair value estimate.

Source/Extract/Excerpts/来源/转贴/摘录: OCBC Investment Research
Publish date: 30/03/121

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