• Price corrected post our downgrade
• FY16F yield close to 2 SD above 5-year mean
• Expect stable DPU growth
Valuations back to attractive levels
Following our downgrade on CapitaLand Mall Trust (CMT) to a ‘Hold’ on 22 Oct 2015, we note that its share price has since corrected 8.5%, as market jitters resurfaced over the possibility of a Fed lift-off in Dec this year after a strong Oct jobs data report. At current price levels, we believe the market has adequately priced in the risks associated with an interest rate hike as well as headwinds facing the retail sector in Singapore. CMT’s risk-reward appears compelling, with the stock trading at 6.1% FY16F distribution yield, which is close to two standard deviations above its 5-year forward average of 5.5%. The yield spread of CMT against the Singapore Government 10-year bond yield currently stands at 3.6 ppt, and this comes in at half a standard deviation above the 5-year mean of 3.4 ppt. From a book value perspective, CMT’s FY16F P/B ratio is 1.05x, and this is also attractive, in our view, as it is 1.5 standard deviations below its 5-year forward mean of 1.16x. Based on these factors, we are upgrading CMT from ‘Hold’ to BUY, with an unchanged fair value estimate of S$2.09.
Seeking to unlock asset value
CMT’s management is constantly seeking to enhance the value of its portfolio by carrying out asset rejuvenation works and tenant repositioning exercises to make its malls more relevant to consumers. An example of this is Tampines Mall, whereby CMT reconfigured its second and third level to boost its fashion offerings, bringing in new tenants such as H&M. It is also speeding up phase two of its AEI at IMM Building. Other initiatives include exploring opportunities to unlock asset value, such as the possible redevelopment or disposal of Funan DigitaLife Mall.
Still room for growth
While we are cognisant of challenges facing retail landlords, we expect CMT to continue delivering stable growth to its unitholders. We forecast DPU growth to come in at 2.3% and 2.5% for FY15 and FY16, respectively, partly driven by contribution from its recent Bedok Mall acquisition. (Read Report)
Source : OCBC Investment Research