DBS Group Research analysts Geraldine Wong and Derek Tan have maintained their “buy” call on CapitaLand Retail China Trust (CRCT) following the REIT’s divestment of its entire interest in the Wuhan entity which holds CapitaMall Minzhongleyuan on Jan 11.
See: CapitaLand Retail China Trust divests entire interest in Wuhan entity which holds CapitaMall Minzhongleyuan for $52.6 mil
Wong and Tan have also kept their one-year target price of $1.70 on the counter.
The way they see it, the divestment of the underperforming mall comes as a “positive surprise” and that CRCT received compelling value for a morphing China behemoth.
“The yield accretion to our revised FY2021 forecasts is attractive at 5.0% post acquisition of sponsor’s business park portfolio, while forward yields are at a compelling 7.4% on current price levels,” they write in a Jan 11 report.
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Wong and Tan also see China’s leading the recovery post-Covid-19 as positive for the REIT.
The retail sector in China turned positive for the first time in 2020, which should have translated to improvements in shopper footfall and tenant sales for CRCT.
“September retail sales growth was even stronger at 3.3% y-o-y, indicating that retail spending may have returned with a vengeance in recent months,” they say.
“We remain excited that CRCT will emerge as the sponsor’s pure play into China with an addressable asset pipeline of more than $33 billion,” they add.
“Its recent acquisition is likely one of many to come as CRCT steers towards an asset class mix comprised of mixed development/business parks/retail at 40%/30%/30% respectively. The transformation will bring about new horizons for the REIT beyond scale, with greater income visibility and ‘future-proofing’ earnings.”
CRCT’s recent acquisition of a business park portfolio has also been priced into Wong and Tan’s estimates, and as they roll forward valuations into FY2021.
Wong and Tan view that the upward trajectory in China has not been priced in.
“We think that there may be room for retail sales to trend past a normalised level in 2021,” they note.
However, key risks on CRCT may come about due to tightening pandemic measures following respikes of Covid-19 cases due to a number of imported cases or a return of Covid-19 clusters.
Units in CRCT closed 2 cents higher or 1.4% up at $1.45 on Jan 13.
