• Unit price up 14% since upgrade
• Trading at 6.7% FY17F yield
• Maintain S$1.58 FV

Consumer Confidence Index Stands at 110

Demand indicators for the Chinese retail market continue to look healthy. According to the China’s National Bureau of Statistics, total retail sales of consumer goods nationwide increased 10.1% YoY for the Jan-Apr 2017 period. According to Nielsen, China’s Consumer Confidence Index reached 110 points in 1Q17, the highest score since 2015. Given China’s ongoing transition to a consumer-oriented economy, we continue to be positive on the longterm growth potential of demand in the country’s retail market. Note that according to the World Bank, China’s urban population stood at 57% in 2016, up 6 ppt from 2011.

Upcoming Supply Injection in Beijing

According to Savills, 13 new mid- to high-end shopping malls (total retail GFA of ~1.05m sqm) are expected to debut during the remainder of 2017. Given CRCT’s track record of good operational performance, we expect their portfolio to do relatively well in the face of this fiercer competition. Nonetheless, this may place a damper on rental reversions in the nearer term.

Catalysts Still Intact, But Current Price Is Near FV

Maintaining our 8.5% cost of equity and 1.9% terminal growth rate, our fair value stays at S$1.58. In our previous report, we highlighted the recovery of CapitaMall Minzhongleyuan (MZLY) and contributions from recently acquired CapitaMall Xinnan as two key catalysts for CRCT going forward. While we continue to see some upside from MZLY and Xinnan, we note that current price levels are more reasonable than the depressed levels we previously saw.

Since we upgraded CRCT from a Hold to a Buy on 27 Jan 2017, the unit price has increased 14.2% to yesterday’s closing price, or up 33.2% on an annualized basis. Since the start of the year, the RMB has weakened slightly from 0.208 SGD to 0.203 SGD. We keep our FY17 assumption of 0.208 SGD for now and will update it after the 2Q17 results. According to our dividend forecasts, CRCT is trading at a 6.7% FY17F yield.

Given the current price levels, we downgrade CRCT to HOLD with an unchanged fair value of S$1.58.

Source: OCBC Research - 12 Jul 2017