SINGAPORE (Oct 23): Analysts are keeping a rather neutral stance on CapitaLand Mall Trust (CMT) following its results announcement on Oct 21.
The trust posted a 4.8% increase in its 3Q19 DPU to 3.06 cents from 2.92 cents in 3Q18, with distributable income increasing 9.1% y-o-y to $113.0 million.
Gross revenue also grew 17.9% y-o-y to $201.1 million, mainly due to the completion of the acquisition of the remaining 70.0% interest in Westgate on Nov 1, 2018, and the opening of Funan after a three-year redevelopment on June 28, 2019.
Property operating expenses climbed 18.9% during the quarter to $56.9 million, mainly due to the Westgate stake acquisition and the reopening of Funan’s retail and office components in June.
Consequently, CMT recorded net property income (NPI) of $144.2 million in 3Q19, some 17.6% higher than NPI of $122.7 million a year ago.
See: CapitaLand Mall Trust posts 4.8% rise in 3Q DPU to 3.06 cents
Following the results announcement, RHB Group Research is staying “neutral” on CMT with a target price of $2.38.
Although the trust’s results were in line and occupancy rate saw a slight 0.6 percentage point improvement to 98.9%, rental reversion for 3Q19 was at -1.7%, while tenant sales and shopper traffic declined y-o-y. This reflects the overall slowdown in demand for retail space.
In a Tuesday report, analyst Vijay Natarajan says, “About 2.4%/26% of leases (by gross rental income) are due for renewal in 4Q19/20, for which we expect flattish rental reversions.”
Retail sales also fell for the seventh consecutive month in August, and have declined 2.6% YTD, on cautious consumer demand in light of the slowdown in the economy. The analyst expects the outlook to remain lacklustre, with consumer sentiment staying weak.
Meanwhile, Maybank Kim Eng is also reiterating its “hold” recommendation on CMT with a higher target price of $2.65 from $2.60 previously.
CMT’s balance sheet remains healthy as gearing at 34.4% is close to its 15-year average, suggesting $1.8-2.8 billion in estimated debt headroom.
In a Tuesday report, analyst Chua Su Tye says, “We believe management is eyeing overseas growth options, while its Singapore pipeline (Jewel) ramps up, and is a likely medium-term target.”
Maybank Kim Eng prefers Frasers Centrepoint Trust in the retail space for its higher yields and more visible DPU growth profile.
On the other hand, DBS Group Research is more bullish on CMT as the research house is keeping its “buy” call on CMT with a target price of $2.95.
In a Tuesday report, lead analyst Rachel Tan says, “We remain bullish on CMT as we believe Westgate and Funan will continue to drive growth in FY19F/FY20F (evident in 3Q19), by about 3% CAGR (2-Yr), one of the faster growing large-cap S-REITs.”
Furthermore, the analyst believes that the trust’s continued efforts to rejuvenate its malls and optimise its tenant mix will continue to drive operational improvements. Currently, Lot One Shoppers’ Mall is undergoing its rejuvenation and visitors can look forward to a wider movie selection and a bigger public library, both for progressive completion from 2H20.
As at 12.00pm, units in CMT are trading at $2.62 or 1.3 times FY19 book with a dividend yield of 4.5%, according to RHB’s estimates.
