CapitaLand Retail China Trust - Take refuge here


■ 2Q15 DPU of 2.73 Scts (+5% y-o-y) in line

■ Tailwind from healthy tenant sales and FX

■ Offers high DPU growth amid slowing Singapore focused REITs

Upgrade to BUY, TP raised to S$1.80

2Q15 results in line
2Q15 DPU came in at 2.73 Scts (+5% y-o-y) which was in line with our expectations. The results were driven by a 5% y-o-y increase in NPI to S$36m largely on the back of currency gains (avg. 2Q15 SGD/RMB exchange rate of 4.6 vs 2Q14 average of 4.9). NPI in RMB terms was down 1% due to lower contribution from Minzhongleyuan (impact of road closure), Wuhu (undergoing tenancy adjustments) and Saihan (impact of higher property taxes). However, we note that CRCT’s other stabilised multi-tenanted malls (Xizhimen, Wanjing, Grand Grand Canyon and Qibao) had a solid quarter, with NPI’s up 4-15%. In addition, as CRCT navigates the near-term challenges at some of its malls, we believe it should report stronger 2H results.

Investing for future growth
CRCT made the strategic decision in 2Q15 to attract various popular international retailers such as UNIQLO. While 2Q15 rental reversions took a short-term hit, down to +4.6% y-o-y (+10.8% excluding this investment) versus 13-25% achieved over the last few six quarters, we expect this to lead to stronger foot traffic, tenants sales and healthy rental reversions in the medium term. To account for the short-term investment and potential impact from a slowdown of the Chinese economy, we trimmed our FY15-16F DPU by 3-7%.


Technical Analysis
Daily Chart
Upgrade to BUY
Amid the uncertainty in Singapore, with headwinds in various property sub-segments translating into DPU growth in the low single digits, we recommend investors to seek refuge in CRCT which offers one of the highest DPU CAGR of 6% and an attractive 6.5% yield. In addition, its low gearing of only 28% provides DPU upside from debt-funded acquisitions. Thus, we upgrade our recommendation to BUY from HOLD, with a revised DCF-based TP of S$1.80 (we roll forward to FY16). Our TP implies a P/BV of 1.1x, in line with its historical average. (Read Report)

Read Related Reports
CapitaLand Retail China Trust - 2Q15 Results: Portfolio tenant sales still going strong
Thursday, 30 July 2015
- Phillip Securities Research
CapitaLand Retail China Trust - Soft quarter for rental reversions
Wednesday, 29 July 2015
- Daiwa Capital Markets
CapitaLand Retail China Trust - Time to go shopping for new malls
Wednesday, 29 July 2015
- JP Morgan Asia Pacific Equity Research

Source : DBS Group Research

Labels: ,