DBS Group Research has turned more bullish on CapitaLand Retail China Trust (CRCT) following the latter’s proposed acquisition of several properties in China and the further improvement in the retail sector there.
The brokerage has raised its target price to $1.70, from $1.55 previously, with an unchanged “buy” rating.
On Nov 6, CRCT announced that it will acquire five business park properties and the balance 49% stake in Rock Square mall.
An extraordinary general meeting will convene on Dec 22 to seek unitholder approval for the acquisition.
According to DBS, CRCT’s yield accretion post acquisition is attractive at 5%, while forward yields are at a compelling 8.5% on current trading levels.
The proposed deal, it says, is likely one of many to come as CRCT steers towards an asset class mix comprising mixed development, business parks and retail assets at a ratio of 40:30:30.
“The transformation will bring about new horizons for the REIT beyond scale, with greater income visibility and future-proofed earnings beyond the initial 5.0% yield accretion,” DBS analyst Geraldine Wong and Derek Tan write in a note dated Dec 9.
Meanwhile, the stronger y-o-y China retail sales growth of 3.3% in September provides an additional boost.
DBS says this may indicate that retail spending will return with a “vengeance” during the festive shopping period.
As at 11.53 am, CRCT was up 1 cent or 0.8% at $1.29 with 4.5 million units changed hands.