CFA Society Singapore
SINGAPORE (Dec 7): DBS Vickers Securities reiterates its “buy” call on CapitaLand Mall Trust (CMT) with an adjusted target price of $2.44, which now reflects a higher proportion of equity used to finance its acquisition of Westgate mall.
In a Thursday report, analyst Carmen Tay say she expects a re-rating of CMT’s unit price as its earnings growth returns to an upward trajectory of about 3-4% per annum, versus S-REITs’ average of about 1-2%.
“Expectations for CMT are low, as investors are barely anticipating any rental reversion growth, in our view. The recent uptick in retail sales, if sustained, limits downside to rental reversions, and may trigger a share price re-rating. The utilisation of its balance sheet to fund further acquisitions also offers an upside surprise to our estimates,” explains the analyst.
The REIT offers FY19F yield of 5.2% and total potential returns in excess of 14%, based on the research house’s estimates and at its Dec 6 closing price of $2.26.
“Anchored by resilient yields, CMT has been a safe harbour for investors but is also starting to emerge as a growth play. As the retail sector bottoms out, CMT is set to outperform as full contributions from Westgate and the return of Funan takes DPU back on a multi-year growth path,” says Tay.
Despite uncertainties over a surge in new retail supply over 2018-2019, the analyst does not think this will pose a big threat to CMT, considering its 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,” she adds.
As at 3.54pm, units in CMT are trading 1 cent higher at $2.27 or 19.4 times FY18F earnings.