SINGAPORE (Apr 14): CapitaLand Retail China Trust (CRCT) is poised to benefit from the easing of China’s lockdown, according to DBS Group Research.
This comes as the provincial governments in China have since relaxed tightening measures on the account of fewer new novel coronavirus (Covid-19) cases.
The brokerage understands that all of CRCT’s 13 retail malls in China have since reopened, including Minzhongleyuan, which is situated in Wuhan City.
It points out that currently, about 89% of stores by net lettable area have reopened on a portfolio-wide basis.
“CRCT’s retail malls that are strategically located near strong residential catchment areas, with tenants serving the daily needs of shoppers, will likely be in a prime spot to benefit from the relaxed measures,” DBS analyst Derek Tan writes in a note dated April 13.
According to DBS, CRCT is a good proxy for retail sales growth across Tier 1 cities in China.
In particular, about 60% of CRCT’s net property income is derived from Beijing, with well-located assets that are dominant malls in their respective submarkets.
DBS notes that the temporary dip in tenant sales during this disruptive period should not have a material impact given that only about 3% to 5% of rental revenue is tied to tenant sales on a portfolio basis.
As such, the medium-term growth remains intact as pro-stability policies and measures implemented by the government will continue to bode well for China’s domestic consumption.
“They will likely fuel domestic retail consumption [growth] at a mid-single-digit level going forward,” says Tan.
DBS maintains its “buy” rating for the trust with a lower target price of $1.55 from $1.75 previously.
As at 11.20 am, CRCT was up 2 cents or 1.5% at $1.34, with some 2.1 million units changed hands.
