SINGAPORE (April 24): OCBC Investment Research is keeping its “buy” recommendation on CapitaLand Retail China Trust (CRCT), and lifting its fair value estimate marginally to $1.58, from $1.56 previously.
“CRCT’s 1Q17 results came in at the lower range of our expectations due to higher than expected tax as a result of the inclusion of CapitaMall Xinnan,” says OCBC lead analyst Deborah Ong in a report on Monday.
CRCT’s DPU grew 1.1% to 2.74 cents in the first quarter ended March 31, as distributable income increased 5.0% to $24.4 million.
(See: CapitaLand Retail China Trust 1Q DPU up 1.1% to 2.74 cents)
Apart from CRCT’s DPU, which came in at 23.3% of OCBC’s full year forecast, Ong says indicators for CRCT’s operational performance were “very encouraging”.
According to Ong, CapitaMall Minzhongleyuan (MZLY) is “finally bearing fruit”, with shopper traffic growing more than 90% y-o-y and sales at the mall increasing more than 60% y-o-y.
“MZLY is undergoing a strong turnaround, clocking 35.1% growth in rental reversions for 11.0% of the leases by NLA (net lettable area) in 1Q17,” she says.
In addition, CRCT could be lifted by CapitaMall Xinnan, which was acquired at the end of Sept last year.
“CapitaMall Xinnan recorded a NPI margin of 72.7% in 1Q17, a strong improvement over the 52.4% margin recorded in 4Q17,” says Ong.
The analyst notes that the Xinnan mall clocked a healthy rental reversion of 13.7% in 1Q17 for 4.7% of the leases by NLA.
“We continue to see upside potential with MZLY and Xinnan,” says Ong.
As at 2.23pm, units of CapitaLand Retail China Trust are trading 1.5 cents lower at $1.50.
