SINGAPORE (May 9): OCBC is re-iterating its “buy” call on Lippo Malls Indonesia Retail Trust with a fair value of $0.435.
As of last Friday’s closing price of $0.425, LMIRT is currently trading at an attractive FY17F yield of 8.2%.
“Over the longer-term, we are positive on LMIRT given that Indonesia retail presents a healthy outlook with strong growth rates projected for household spending,” says analyst Deborah Ong in a Monday report.
Lippo Malls Indonesia Retail Trust’s (LMIRT) 1Q17 results were in line with expectations. DPU increased 7.2% y-o-y to 0.89 cents, or 26.2% of our full-year forecast. Gross revenue increased 6.7% to $48.6 million, on the back of positive rental reversions for existing malls achieved in the past year as well as contributions from the recently acquired Lippo Mall Kuta. As a result, NPI increased 12.9% y-o-y to $46.1 million. Total occupancy rate stands at a healthy 93.8%.
Ong also notes that LMIRT posted rental reversions of 7.5% in 1Q17 for around 0.6% of its leases by NLA and expect it to enjoy even higher rental reversions in Dec this year when the bulk of lease renewals are due to happen.
“We note LMIRT’s efforts to rejuvenate their malls, with asset enhancement initiatives at Sun Plaza, Gajah Mada Plaza and Plaza Semanggi,” says Ong.
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Supported by its history of positive rental reversions, LMIRT has so far enjoyed eight consecutive quarters of positive q-o-q DPU growth – from 0.73 cents in 2Q15 to 0.89.
“Given that occupancy costs in LMIRT’s malls are estimated to be relatively low, we see much potential for positive rental reversions in the long run. In terms of forex risk, LMIRT’s hedging contracts expired in Feb 2017 and have been renewed for the following eight quarters,” adds Ong.
Our cost of equity remains at 8.5%. After making adjustments, our fair value increases slightly from $0.430 to $0.435. 70% of LMIRT’s debt is on a fixed rate basis, with a weighted average maturity of debt of 2.34 years.
As at end March, gearing -- excluding the perpetual securities -- was 32.2%.
