SINGAPORE (Oct 23): OCBC and DBS are maintaining their “buy” calls on CapitaLand Mall Trust (CMT) with an unchanged fair value of $2.20 and price target of $2.19, respectively, after the manager reported a stable set of 3Q results in line with expectations.
In a Monday report, OCBC’s lead analyst Andy Wong notes that the trust saw a slight negative rental reversion of 1.7% for the nine months ended Sept, but highlights there was a slight improvement in consumer sentiment, which was also reflected in Singapore’s retail sales index which showed improvement y-o-y in Jul and Aug.
After fine-tuning assumptions to include lower finance cost projects due to the expected repayment of borrowings from CMT’s divestment of its serviced resident component in the Funan integrated development, OCBC’s FY17 and FY18 distribution per unit (DPU) forecasts have been lifted by 0.5% and 0.4% respectively.
On the other hand, DBS maintains a flat DPU forecast for FCOT over FY18-19 before Funan returns to operation. The research house's price target signals a potential price upside of 7.4% and forward yield of 5.5%.
In the research house's view, the performance of four key malls -- Plaza Singapura, Tampines Mall, Raffles City and Bedok Mall -- will need to be steady for CMT to deliver stable DPU next year. The opening of the Downtown Line 3 may also potentially disrupt shopper behaviour, adds DBS, although it does not expect the new line to materially affect the performance of the trust's Clarke Quay and Tampines Mall properties.
Meanwhile, CIMB is reiterating its “hold” rating on the trust while lifting its target price to $2.15 from $2.11 previously after tweaking its longer-term DPU growth estimates marginally to factor in a more stable outlook.
Nonetheless, its analyst Lock Mun Yee notes there is limited near-term upside on the anticipation of muted rental performance for now, given the trust’s continued tenant remixing exercise.
“CMT has a remaining 3.1% of rental income to be renewed in FY17 and another 30%/30.1% in FY18/19. Most expiries are well-spread amongst the portfolio assets and include some anchor/mini anchor leases. The trend of improvement in Singapore monthly retail sales is also reflected in CT’s portfolio performance,” says Lock.
Phillip Capital, too, has maintained its “neutral” call on CMT with an unchanged target price of $2.01, which translates to a FY17E yield of 5.6% and P/NAV of $1.
“We expect continued pressure for rental reversions until end FY17. The tough operating retail environment is expected to continue with the ongoing threat of e-commerce, in particular Amazon’s recent launch into Singapore,” comments analyst Dehong Tan in a Monday report.
Tan does not see signs of recovery in tenant sales yet, and believes the trust is lacking clear catalysts for its operating performance in the near-term.
“Major supply of retail space in the East these two years in Singapore Post Centre, Paya Lebar Quarter, and Jewel could exert further pressure on rents for malls in the east going forward,” he adds.
As at 11.39am, units in CMT are trading 1 cent higher at $2.05.
