CRCT – DBSV

Stabilising portfolio

• Results in line

• Organic growth near term driver

• Maintain Hold with TP of $1.26

1H10 within expectations. CRCT reported a -2.8% y-o-y dip in topline to S$29.6m due to impact from the stronger SGD, while NPI and distribution income rose 1.9% and 7.3% to $19.8m and $12.9m (DPU 2.07Scts) respectively, on better cost management. In Rmb terms, revenue grew 3.7% to RMB145.1m thanks to better portfolio occupancy, higher contributions from Xizhimen and Saihan malls, partially offset by lower income from Qibao mall. Rental renewals averaged 3.4% over preceeding levels. Higher gross turnover rents as tenant sales picked up 28.8% yoy and 7.6% qoq. NPI rose 8.8% yoy to Rmb97.2m. The group enjoyed a 1.7% revaluation surplus in 1H10, bringing adjusted book NAV to S$1.09.

Benefiting from AEI and firming rents. Looking ahead, we expect 2H to remain robust on the back of firming rents and improved demand as retailers regain confidence and resume expansion activities in the Beijing and Shanghai micromarkets. This will benefit CRCT with a remaining 15.9% of rental income to be renewed this year and a further 15.1% next year, in particular at Xizhimen and Wangjing malls. Moreover, the planned opening of another c2ksm in B2 at Xizhimen later this year should provide some income uplift. Saihan Mall is also anticipated to continue its positive traffic and contribution trend with the establishment of a cinema operator in 2H10. Repositioning of Qibao is underway in tandem with the rejuvenation activities in this Shanghai satellite city, to tap opportunities offered by the new infrastructure and population catchment in the area. In terms of capital management, the trust has a remaining S$231m of debt to be refinanced this year. We expect average cost of debt to rise to 3-3.5% from the present 2.8% after renewal. This has been accounted for in our estimates.

We retain Hold rating. CRCT is trading at FY10 and FY11 yields of 6.6-6.7%. Our target price translates to a 6-7% absolute return. Maintain Hold. Key risk to our view include faster than expected improvement in operating fundamentals.