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Why CLCT is a 'buy' despite its weak FY2020 results

Jeffrey Tan
Jeffrey Tan • 2 min read
Why CLCT is a 'buy' despite its weak FY2020 results
DBS believes that CLCT has “compelling value for a morphing China behemoth”.
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Analysts have continued their optimism for CapitaLand China Trust (CLCT), formerly known as CapitaLand Retail China Trust (CRCT), despite CLCT’s weak FY2020 results ended Dec 31.

DBS Group Research has maintained its “buy” call for the trust albeit with a lower target price of $1.55 from $1.70 previously.

OCBC Investment Research, too, has a “buy” rating for the trust with a higher fair value of $1.58 from $1.35 previously.

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On Jan 29, CLCT announced that its distribution per unit (DPU) tumbled 35.9% y-o-y to 6.35 cents in FY2020.

Its net property income also declined 17.9% y-o-y to $69.9 million.

Nevertheless, DBS believes that CLCT has “compelling value for a morphing China behemoth”.

The brokerage notes that China is leading the recovery post Covid-19.

Green shoots emerged within China’s retail sector in August as retail sales turned positive for the first time in 2020, it says.

This would have translated to improvements in shopper footfall and tenant sales for CLCT, it adds.

Moreover, September retail sales growth was strong at 3.3% y-o-y, indicating that retail spending may have returned with a “vengeance” in recent months.

SEE: CapitaLand China Trust posts 30.2% lower 2H20 DPU of 3.33 cents and 35.9% lower FY20 DPU of 6.35 cents

“We think that there may be room for retail sales to trend past a normalised level in 2021,” DBS analysts Geraldine Wong and Derek Tan write in a note dated Feb 1.

OCBC is equally sanguine.

The brokerage expects CLCT to benefit from the recovery trend in China in 2021 and growing demand and policy support for business parks, barring any risks of subsequent waves of infections.

CLCT recently completed the acquisition of five business park properties and the balance 49% stake in Rock Square mall.

As at 11.23 am, CLCT was up 1 cent or 0.7% at $1.38 with 1.5 million shares changed hands.

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