• 1Q15 DPU grew 10% YoY
• Positive rental reversions of 12.8% in 1Q15
• No change to forecasts, FV and rating

1Q15 results within our expectations

CapitaRetail China Trust (CRCT) reported 1Q15 results which came in within our expectations. Gross revenue jumped 8.1% YoY in CNY terms to CNY250.4m, driven by rental growth from its multi-tenanted malls. Due to a stronger CNY visà-vis the SGD, CRCT’s gross revenue jumped 13.3% YoY to S$54.5m and this formed 25.4% of our FY15 forecast. Similarly, CRCT’s NPI increased 1.9% YoY in CNY terms to CNY158.6m, but growth was stronger at 6.8% in SGD terms to S$34.5m. DPU for 1Q15 came in at 2.64 S cents. This represented YoY growth of 10.0% and constituted 24.9% of our full-year projection.

Operational trends largely healthy

CRCT’s malls registered robust tenants’ sales growth of 14.3% YoY, exceeding the national retail sales growth of 10.6%. Shopper traffic was up a modest 1.6%. Although management secured positive rental reversions of 12.8% in 1Q15, we note that this was softer than the 20.6%-24.9% rental uplifts recorded from 1Q14 to 4Q14. Overall portfolio occupancy stood at 95.1% as at 31 Mar 2014, a slight 0.7 ppt QoQ decline. This was attributed to continued weakness at CapitaMall Wuhu and CapitaMall Minzhongleyuan, with the former undergoing a tenant repositioning exercise to differentiate from competing malls; and the latter impacted by road closure to facilitate the construction of a subway line.

Reiterate HOLD

CRCT had a healthy gearing ratio of 28.6%, as at 31 Mar 2015 (-0.1 ppt QoQ), with an average cost of debt of 2.99%. 76.7% of its total borrowings are fixed (89.0% if we exclude onshore RMB loans). Looking ahead, management has plans to enhance the competitiveness of its portfolio. It intends to carry out AEI works at CapitaMall Grand Canyon (upgrading of toilets and car park) and CapitaMall Wangjing (enhance accessibility and rejuvenate mall’s façade). We retain our forecasts, HOLD rating and S$1.64 fair value estimate on CRCT given this in-line set of results. The stock is currently trading at FY15F distribution yield of 6.1% and P/B ratio of 1.08x.

Source: OCBC Research - 27 Apr 2015