• 3Q DPU up 0.4% YoY
• Catalyst at Wangjing
• FV increases to S$1.61

3Q17 Results Within Expectations

CapitaLand Retail China Trust's (CRCT) 3Q17 results were within expectations. 3Q17 revenue increased 10.6% YoY to S$56.0m, mainly due to new contribution from CapitaMall Xinnan which outweighed the divestment of CapitaMall Anzhen. Similarly, 3Q17 NPI increased 9.7% YoY to S$36.0m or 22.0% of our full-year forecast.

3Q17 DPU increased 0.4% YoY to 2.37 S cents or 22.0% of our initial full-year forecast (which includes an assumed capital distribution top-up from CRCT for the Anzhen divestment). 9M17 DPU came to 7.73 S cents or 72.2% of our full-year forecast. Without the assumption of this top-up, the 3Q17 DPU of 2.37 S cents would have made 22.8% of our full-year forecast.

Leasing Demand Strong for Wangjing Lvl 4

Going forward, we expect greater contributions from CapitaMall Wangjing from 2Q18 onwards as the proportion of non-anchor NLA increases from 50% to 60%. On another note, contributions from CapitaMall Minzhongleyuan have been fairly volatile as it continues to undergo trade mix adjustments – with the asset clocking NPI of RMB 1.0m in 1Q17, RMB 2.5m in 2Q17, and RMB 0.3m in 3Q17.

While the asset is relatively small, we had initially expected a more robust gain in contributions post the opening of the Zhongshan Avenue. We believe that these adjustments may take longer than we initially expected and make changes to our assumptions accordingly.

Maintain HOLD

CRCT recorded a resilient portfolio occupancy of 95.6%, clocking a healthy rental reversion of 7.5% in 3Q17. We previously assumed that there will be a top-up from the Anzhen divestment proceeds for any lost income due to the disposal in FY17 and FY18, but have now adjusted our DPU forecasts to assume no top-up to be conservative.

We expect more clarity on any potential capital distribution next quarter. We continue to be positive on CRCT’s long-term prospects, though current unit prices could be more compelling.

According to the National Bureau of Statistics of China, China’s economy expanded 6.8% YoY in 3Q17 to RMB 59.3t while retail sales increased 10.4% YoY to RMB 26.3t. After rolling our estimates forward, our fair value estimate increases from S$1.59 to S$1.61. Maintain HOLD.

Source: OCBC Research - 24 Oct 2017