As China shows signs of a retail recovery, now could be a good time for investors to pick up units in CapitaLand Retail China Trust (CRCT).

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According to DBS Group Research, CRCT reflects “compelling value” as the trust is trading at 0.7 time its net asset value with forward yields of over 8.5%.

“At current valuations, we see limited downside as we believe that investors have ignored that CRCT can deliver positive earnings surprise given the broader recovery in retail sales as China emerges post the Covid-19 pandemic,” DBS analyst Derek Tan and the research team write in a note dated Oct 8.

DBS has maintained its “buy” rating for CRCT with an unchanged target price of $1.55.

According to the brokerage, China’s retail sales index turned positive for the first time this year in August as retail sales rose 0.5% y-o-y.

This in contrast to the trough in January and February (both down 20.5% y-o-y), which coincides with the pandemic peak in China, it says.

With green shoots emerging within the broader market, DBS believes that China will set the stage for a retail recovery globally.

It reckons that CRCT is well positioned to take advantage of the recovery given its focus in the suburban space.

“With many opportunities to spend and fatter-than-normal wallets for the Chinese consumer, we think CRCT’s upcoming results may spring a further surprise in terms of operational performance,” say Tan and the research team.

As at 2.48 pm, CRCT was up 2 cents or 1.7% at $1.18 with 8.9 million units changed hands.