CapitaRetail China Trust :
BUY S$1.485 STI : 3,218.20
(Upgrade from HOLD)
Price Target : 12-month S$ 1.75 (Prev S$ 1.78)
Silver lining in the China gloom
• 2Q13 results in line
• MZLY to be closed for AEI works until 2Q14, CRCT to acquire new Beijing mall for Rmb1.8bn
• Upgrade to BUY, TP S$1.75
Good results amid China gloom. CRCT announced a strong set of 2Q13 results, recording revenue of S$40m (+5% y-o-y), NPI of c.S$26m (+6% y-o-y) and distributable income of S$18m (+8% y-oy). DPU fell 1.2% to 2.38Scts however, due to the enlarged share base from last year’s private placement. 1H13 DPU totals 4.69Scts.
CRCT saw rental reversions of c.17%, as well as higher tenant sales (+10% y-o-y), showing that their malls are performing well in their respective micro markets against weaker sentiment for China at large.
MZLY to shut for 9 months. Management has guided that Minzhongleyuan (MZLY) will be closed from 2Q13 onwards for c.9- 10 months due to the extensive AEI programme. They are targeting a May 2014 reopening, and expect that the higher rent and income achievable post-AEI will compensate for the loss of income for the first 4-5 months of FY14. We have revised our FY13F earnings down by 1.8% to factor in the mall’s closure in 2H13.
Distribution Reinvestment Programme rolled out. CRCT is rolling out its Distribution Reinvestment Plan for 1H13 which provides unitholders an option to receive distribution in units (at a 4% discount) in lieu of cash, in part as a cost effective way to raise equity as well as partly to conserve cash to finance the Rmb1.8bn acquisition of Grand Canyon Mall. We estimate that if fully exercised, its share capital base will increase by c.25m units (+3.3% of total). Potential dilution in DPU should be countered by new income contribution from the mall, which we believe will be accretive in the medium term.
Upgrade to BUY, TP adjusted to S$1.75. We believe that market reaction to CRCT on concerns of the supply glut and the economic downturn is a tad unwarranted. Share price has fallen c.20% from its high of S$1.87 in early April, and given its compelling growth story for FY14 and the still strong underlying performance of its existing malls, we believe this weakness presents an opportunity to re-look at the investment case for the stock. With a c.20% upside to our TP of S$1.75, we upgrade CRCT to BUY. We have not factored further acquisitions into our assumptions.