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Market sentiment on CapitaLand Mall Trust 'too pessimistic', says CGS-CIMB; upgrades to 'buy'

Stanislaus Jude Chan
Stanislaus Jude Chan • 2 min read
Market sentiment on CapitaLand Mall Trust 'too pessimistic', says CGS-CIMB; upgrades to 'buy'
After the completion of its merger with CapitaLand Commercial Trust in June later this year, CMT is set to become the largest REIT in Singapore and third-largest in Asia Pacific.
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SINGAPORE (Mar 5): CapitaLand Mall Trust (CMT) has seen its share price slide on concern over the novel coronavirus (Covid-19) outbreak in Singapore.

From its year-to-date peak of $2.62 on Jan 24 – a day after the first confirmed case in Singapore – the counter fell 13.4% to close at a 52-week low of $2.27 by the end of February.

But even as the coronavirus outbreak continues to spread across the globe, CGS-CIMB Research believes now is the time to buy into CMT.

CGS-CIMB Research is upgrading its recommendation for CapitaLand Mall Trust to “add”, from “hold previously, and raising its target price by 2.6% to $2.75.

“At current price and based on its 5-year average yield spread of 3.2%, we estimate that the market has priced in 11% DPU downside from Covid-19 which we see as too pessimistic,” says lead analyst Eing Kar Mei in a March 4 report.

After the completion of its merger with CapitaLand Commercial Trust in June later this year, CMT is set to become the largest REIT in Singapore and third-largest in Asia Pacific.

“We believe the impact from Covid-19 will be short term and its recent share price weakness provides a good opportunity to accumulate the stock,” Eing says.

Eing notes that Covid-19 is likely to have a greater impact on CMT than the SARS outbreak in 2003.

This is because variable rent now makes up around 5% of CMT’s rental income, more than doubling from 2% in 2003.

In additional, CMT now also generates a smaller proportion of revenue from suburban malls, which have been found to perform better during these periods.

In FY2019, CMT’s suburban malls only accounted for 56% of revenue, compared to 78% in 1HFY2003 during the SARS outbreak.

“We found CMT's suburban malls relatively resilient in shopper traffic and retail spending,” says Eing, whose team ran ground checks at a few of CMT’s malls. “However, tenants at ION Orchard are in general still seeing a lack of tourist shoppers.”

CGS-CIMB is trimming its DPU forecast for FY2020 by 2% to reflect the Covid-19 impact, after factoring in its tenant relief package.


See: CapitaLand says relief package has not been fully comprehended by RAS

“Even on a prolonged 6-month Covid-19 impact on 50% of its tenants or car traffic, our FY2020F DPU would decline by 7% – less than market expectation of 11%,” says Eing. “FY2020F DPS yield would still be 4.8%, compared to 5.1% now.”

Units in CMT closed 3.3% higher at $2.54 on Thursday.

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