We attended the CapitaRetail China Trust ("CRCT") 4Q2014 Results Briefing held on 29 th January.

Key Takeaways:

Important to stay nimble and spot key retail market trends to boost tenant sales – Management believes the key to sustaining rental reversions is to stay nimble in identifying key retail trends and adjusting the tenant mix in malls to drive footfall and tenant sales. For instance, Etude House was brought in to CapitaMall Xizhimen in the midst of a heightened craze over Korean cosmetic and beauty products in China.

Outlook for retail sector remains stable – Consumer sentiment remains favourable, notwithstanding the top line decline in China GDP numbers. Management will strive to continue driving tenant sales to maintain double digit portfolio rental reversions for FY2015.

Strong mall operators to gain traction – Retailers are now faced with increasing choices of retail malls. Amidst the boom in supply of retail space, smaller players who lack expertise in running shopping malls and strong balance sheets for the continual capital expenditures will fall by the wayside as the strong operators continue to gain traction. On that note, with the exception of Minzhongleyuan and Wuhu which are undergoing transitional periods, CRCT has a strong portfolio of malls with healthy footfall and ability to generate tenant sales.

Updates on CapitaMall Minzhongleyuan and Wuhu – Minzhongleyuan (~5% of portfolio): Road closure for the new subway line construction has led to a decline of ~40% in footfall in the region. Occupancy (73.9%) will be under pressure until construction completes near end of 2016. Wuhu (~1.5% of portfolio): Occupancy may decline further as management adjusts market positioning of mall to differentiate mall from competition. Adjustment period is expected to take one year.

Strong growth in tenant sales – Despite the rising popularity of e-commerce and online sales promotions such as Alibaba’s wildly popular 11.11 Singles Day and 12.12 Sale (12 December), CRCT’s portfolio has seen healthy growth in tenant sales (16.2% y-o-y vs national retail sales growth of 12%). Growth was seen across most sectors, especially in entertainment (cinema), F&B and fashion.

Investment Action

No stock rating or price target provided, as we do not have coverage on CRCT.

Source: Phillip Securities Research - 31 Jan 2015