SINGAPORE (Sept 10): CapitaLand Mall Trust (CMT) has been a safe harbour for investors and is starting to emerge as a growth play.
And as the retail sector bottoms out, 2019 could be a chance for CMT to shine as full contributions from Westgate and the return of Funan takes DPU back on a multi-year growth path.
In a Monday report, DBS Group Research says CMT’s share price should re-rate on prospects of record DPUs in FY19-20 as earnings growth returns to an upward trajectory of 4% p.a. vs SREIT’s average of 2%.
“Maintain ‘buy’ with higher target price of $2.45 after raising estimates to reflect the higher growth outlook,” says lead analyst Carmen Tay, “At current price, the stock offers FY19 DPU yield of 5.5% and total potential return in excess of 20%.”
While the street remains divided on the stock given the uncertainties over the impact of the surge in new retail supply over 2018-2019, Tay believes the new supply is not a big threat to CMT given strong pre-commitments ahead of completion.
Meanwhile, higher contributions from Westgate and Funan will help drive up DPUs in a sustained manner.
“Our deep dive into Westgate also gives us confidence that the worst is over for the mall – rents appear to be bottoming out, offering upside to reversions as they fall due,” says Tay.
Potential catalyst includes better-than-expected reversions or acquisitions, Tay adds.
In her view, expectations for CMT are low, as investors are barely anticipating any rental reversion growth.
The recent uptick in retail sales, if sustained, could mean that downside to rental reversions is likely to be minimal and may trigger a re-rating of its share price.
The utilisation of its balance sheet to fund further acquisitions also offers an upside surprise to estimates by DBS.
Year to date, shares in CMT are trading flat at $2.11.
