SINGAPORE (Oct 29):  DBS Group Research is reiterating its “buy” recommendation on CapitaLand Retail China Trust (CRCT) on the back of potential value-enhancing tweaks to its portfolio.

“With a visible pipeline from the sponsor, we believe that it is an opportune time for CRCT to look at acquisitions,” says lead analyst Derek Tan in a Tuesday report.

“Aided by an active asset reconstitution strategy, CRCT continues to realise value for investors and proceeds can be deployed to value-accretive deals, which we believe could lead to higher earnings momentum,” he adds.

DBS has a target price of $1.80 on the counter, which is at the higher end of consensus estimates, as it believes the new acquisitions could drive CRCT to higher growth potential.

CRCT reported distribution per unit (DPU) of 2.43 cents for the 3Q19 ended September, 0.8% higher than 2.41 cents a year ago, after capital distribution. The distributable amount to unitholders was 13.9% higher y-o-y at $26.9 million.

Gross revenue for the quarter was 7.5% higher at $59.5 million from $55.4 million a year ago, mainly due to the new contribution from CapitaMall Xuefu, CapitaMall Yuhuating and CapitaMall Aidemengdun, which were acquired on Aug 30 this year.

However, the trust experienced a 10.9% drop in revenue at Qibao and a 5.9% dip at Xinnan, which are due to ongoing tenant remix in order to achieve longer-term operational sustainability amidst competition from other malls.

Net property income was $41.1 million, 11.9% higher than $36.7 million last year.

Meanwhile, occupancy remained healthy at 97%, while 9M19 rental reversions were positive and came in strongly at 7.4% as active repositioning and tenant remixing strategies, among others, bore fruit.

As at 11.50am, units in CRCT are trading at $1.53 or 1.0 times FY19 book with a distribution yield of 6.5%.