• 3Q14 DPU up 10.3% YoY
• Positive rental reversion of 22.6% in 3Q14
• Bright performance likely priced in

3Q14 results within expectations

CapitaRetail China Trust (CRCT) reported a solid set of 3Q14 results, with DPU growing by 10.3% YoY to 2.35 S cents on the back of a 30.2% jump in its gross revenue to S$51.4m (+32.3% YoY in CNY terms). The latter was driven by new contribution from its acquired CapitaMall Grand Canyon, completion of asset enhancement works at CapitaMall Minzhongleyuan and organic rental growth from its other multi-tenanted malls. For 9M14, revenue and DPU increased by 26.7% and 7.6% to S$150.6m and 7.34 S cents, such that these figures constituted 76.2% and 75.7% of our FY14 estimates, respectively. These were within our expectations.

Strong positive rental reversions

Overall portfolio occupancy stood at 97.6% as at 30 Sep 2014, a slight decline from the 98.1% recorded as at 30 Jun 2014. During 3Q14, CRCT delivered a robust 22.6% rental reversion, and this was also the third consecutive quarter which it saw a rental uplift of more than 20%. This was driven largely by CapitaMall Wangjing and CapitaMall Grand Canyon, both of which turned in rental growth of 32.3% from their preceding rental rates. Shopper traffic and tenants’ sales at its malls increased by 3.8% and 16.1% YoY, respectively, with the latter outperforming the overall China retail sales growth of 11.9% during the same period.

On the flip-side, we expect near-term pressure on footfall, tenants’ sales and occupancy rates at CapitaMall Minzhongleyuan. This is attributed to the closure of the adjacent Zhongshan Avenue to facilitate the construction of subway Line 6 for two years from Aug 2014. Nevertheless, this mall’s positioning and accessibility will be enhanced once the subway line is completed.

Maintain HOLD

We fine-tune our assumptions following a change in analyst coverage. Our DDMderived fair value estimate increases marginally from S$1.55 to S$1.58. However, we maintain HOLD on CRCT, as we believe its sturdy financial performance and growth prospects have been priced in by the market. Its share price has appreciated 19.2% YTD.

Source: OCBC Research - 28 Oct 2014