Price (at 09:04, 27 Aug 2013 GMT) S$1.37
Valuation S$ 1.61
Strong operations hurt by macro concerns
CapitaRetail China Trust presented at Day One of our Asean conference in Singapore.
Positive rent reversions. Despite a slowdown in the Chinese economy, CRCT managed to secure 17.3% rent reversions in 2Q13 and about 14.9% p.a. over the past three years. About 59% of its gross rentable area and 78% of revenue are from its malls in Tier 1 cities, which are not as oversupplied as in Tier 2 or Tier 3 cities.
Balance property portfolio. CRCT has 6 malls which are multi-tenanted to drive DPU growth and these account for 73% of net property income (NPI). The other three malls (27% of NPI) are master leased which provides income stability.
Acquisitions and asset enhancements (AEIs). CRCT expects the AEIs for Mingzhongleyuan to be completed in 2Q14 and the proposed acquisition of Grand Canyon Mall (RMB1.74bn) in Beijing in 4Q14. These assets will help drive DPU growth over the next few years, over and above organic rent reversions.
Gearing of 24%. This is expected to rise to circa 32% post the acquisition and AEI. About 80% of its debt is on fixed rates.
Earnings and target price revision
No changes to DPU estimates and TP.
12-month price target: S$1.61 based on a DCF methodology.
Catalyst: Positive rent reversions in 2H13 and into 2014; successful completion of AEI at Mingzhongleyuan mall in Wuhan.
Action and recommendation
CRCT has corrected about 17% YTD, under-performing the SREIT sector by 9% and the broader FSTI by 14%. We expect DPU growth in FY14 and FY15 to be driven by AEI at Mingzhongleyuan as well as from positive rent reversions. It is trading just below book value and offers a 7.7% FY14E yield.
Publish date: 27/08/13