Investment Merits

Growth of the Chinese Consumer – Chinese government has pushed to shift the growth drivers of the country to domestic consumption based. Slew of pro-consumption government measures will provide a boost to domestic consumption.

Strongest population growth amongst China’s top 4 cities with largest urban population – Beijing has the highest population growth rate amongst the cities with the 4 largest urban populations in China. Disposable income and consumption expenditure per capita (Beijing) have outpaced the rest of urban China.

Strong mall operator – Average tenant sales growth has outperformed general retail sales growth through nimble tenant adjustments to boost footfall and tenant sales. This has translated to robust rental reversion of 18.4% average over past 12 quarters.

Key Risks

Growing popularity of e-commerce – Proliferation of ecommerce platforms such as Wechat and frequent marketing gimmicks such as Alibaba’s immensely popular 11.11 Singles Day could cannibalize retail sales from brick and mortar stores

Falling consumer confidence and uncertainties over the economy – Uncertainties in the economy and housing could affect consumer sentiment and lead to lower discretionary spending, especially given Chinese’ propensity to save.

Investment Actions

We initiate coverage on CRCT with an "ACCUMULATE" rating and DDM-derived TP of S$1.70 (using DDM valuation, cost of equity 8.8%, terminal growth 2.0%) representing an upside of 12.3% from current price.

Source: Phillip Securities Research - 20 Mar 2015