STI : 3,047.93
Price Target : 12-month S$ 1.56 (Prev S$ 1.60)
Triple booster shot for growth
Triple booster shot for growth
• Positive earnings momentum continued into Q4 despite income vacuum from MZLY
• Three-pronged earnings driver to boost growth in FY14
• Maintain BUY, TP $1.56
Positive earnings growth despite income vacuum from MZLY. CRCT reported 4.9% higher revenues of S$41m, 3.4% higher NPI of S$26m and a 4 .9% growth in distributable income. This was largely attributable to higher revenue growth at the multi-tenanted malls CM Xizhimen, Wangjing, Qibao and Saihan, although partially offset by the closure of MZLY for AEI works. However, DPU fell 5.5% y-o-y to 2.2Scts due to dilution from an enlarged share base post-preferential offering. CRCT’s portfolio was revalued at 6.6% NPI yield, bringing its book NAV to $1.48/unit.
Backed by robust organic rental growth and shopper footfalls. The improvement in results was achieved on the back of a positive same-store rental reversion of 10.5% in Q4 over preceding levels (with the exception of CM Wuhu) and a 3.9% pick up in shopper traffic for its ex-Grand Canyon portfolio.
3-pronged growth drivers over the next 2 years. FY14 income growth will be supported by three drivers – maiden full-year contribution from Grand Canyon Mall, completion of the MZLY AEI, as well as organic rental growth. The purchase of Grand Canyon Mall was completed at end Dec 2013 and its FY14 figures will benefit from a full 12-month impact. In addition, a portion of the leases was renewed at end 2013 at 2x preceding levels, bringing yield-on- cost close to 4%. With 11% of its area to be recontracted this year, we see potential for further earnings uplift. Grand Canyon mall is projected to achieve a yield-on-cost of 7-8% following this rent roll cycle.
MZLY on track. MZLY is on track to be re-opened in May 14, as its AEI works are on schedule to be completed by then. Currently, 71% of the space has either been leased out or under advanced negotiations. While no rental indications have been given as yet, the enhancement works are on track to achieve a 10% ROI.
Positive organic rental growth, thanks to rising retail sales. An estimated 22.5% and 21.1% of portfolio income is due to be renewed in FY14 and FY15 respectively. With shopper traffic and retail sales still growing from strength to strength in Jan, we believe the positive momentum on the ground will continue to underpin consumption and this should translate into positive forward rental growth.
Retain BUY rating. We continue to like CRCT. With the successful conversion of its master leased properties into multi-tenanted buildings and tenant remixing, the trust was able to align its rental growth closer to the robust retail sales growth in China. In addition to strong earnings growth over the next two years on the completion of existing AEI plans, there is further room to enhance returns from existing properties such as CM Wangjing and Wuhu to drive future earnings growth. CRCT is trading at 7.6-8.6% FY14-15 DPU yield. Maintain BUY.
Publish date: 30/01/14