CapitaLand Mall Trust kept at 'hold' by OCBC and Maybank on higher mall supply, soft retail sector

CapitaLand Mall Trust kept at 'hold' by OCBC and Maybank on higher mall supply, soft retail sector

PC Lee
26/04/19, 09:42 am

SINGAPORE (Apr 26): OCBC Investment Research says CapitaLand Mall Trust’s (CMT) 1Q19 results met its expectations.

Gross revenue rose 10.0% y-o-y to $192.7 million while NPI jumped 11.5% to $140.1 million, forming 25.1% of its FY19 forecast.

See: CapitaLand Mall Trust declares 3.6% higher DPU of 2.88 cents on higher income

OCBC says Funan has already achieved high pre-commitment levels of 90%, and is on track to open in the middle of 2019 and will thus contribute to CMT’s earnings progressively from 2H19.

However, the near-term outlook remains cautious given the higher supply, which is largely contributed by Jewel Changi Airport and Paya Lebar Quarter retail mall.

See: Jewel: Just one facet of growth

“While this may have an impact on the performance of its malls in the East, we expect CMT’s portfolio to remain resilient,” says analyst Andy Wong.

Although there is increased competition, Wong says Jewel has also attracted new-to-market brands to Singapore.

“We see this as future opportunities for retail landlords such as CMT if these brands were to expand their presence to other parts of Singapore,” adds Wong.

OCBC is maintaining its “hold” but bumping up its fair value estimate to $2.32 from $2.25.

Meanwhile, Maybank Kim Eng is maintaining a "hold" on CMT with $2.40 target price given retail sector fundamentals remain soft and competitive pressures rise with slower shopper traffic and tenant sales on the back of Jewel’s recent opening.

However, analyst Chua Su Tye expects a rejuvenated Funan to contribute towards CMT’s revenue from 2H19.

“Office leasing momentum at the property has been well-supported by several government agencies in finance and legal, and statutory boards at 92,000 sf, or 45% of its total NLA,” says Chua.

Although CMT’s 1Q19 results reinforce the research house’s positive bias towards suburban mall assets, of the lifted retail REITs, Maybank prefers Frasers Centrepoint Trust with $2.60 target price given its visible growth drivers, and potential acquisition catalysts.

Elsewhere, DBS Group Research is maintaining CMT at “buy” as the retail sector bottoms out and new contributions from Funan and Westgate flow in, ascribing to the REIT higher valuations.

While DBS expects some volatility in east-side malls due to the opening Jewel in 2Q19, the research house expects higher contributions from Westgate and Funan to more than compensate for the expected near-term hurdles that Tampines Mall and Bedok Mall.

At its current price of $2.36, “the stock offers FY19F DPU yield of 5.0% and total potential return in excess of 10%,” says DBS lead analyst Carmen Tay.

As at 9.31am, CMT units are down 2 cents at $2.37 giving a FY20F DPU yield of 5.3% based on DBS's estimates.

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