PCRT – CIMB

Awaiting a turnaround

A strong buffer of earn-out funds protected dividend yields, but operational numbers disappointed with profits from joint entity coming in weak. Repositioning and leasing of Shenyang malls are likely to come to fruition in 4Q12-1Q13.

1Q12 DPU was in line at 24% of our and consensus full-year estimates, backed by earn-out funds. We adjust FY12-14 earnings and lower our RNAV target price (still at 35% discount to RNAV) on longer gestation and lower rents. Maintain Outperform, with pick-up in leasing momentum/retail sales as catalysts.

Weaker operational figures

1Q12 profits from joint entities (contributions from two Shenyang malls) came in below, forming 15% of management’s forecast for the quarter on weaker rental contributions. Occupancies for the two malls inched up, from 56.1% to 60.2% for furniture mall and 67.1% to 69.7% for Longemont mall. The bulk of committed tenants have commenced operations. Construction is on track for properties under development and anchor tenants (supermarket/cineplex) have been secured for Foshan Yicui Shijia and Chengdu Qingyang Guanghua malls, to open in 1Q13 and 2Q14 respectively.

Guidance for gestation period at Shenyang malls

The substantial earnings miss against management forecast was primarily due to the repositioning of 40% of the furniture mall’s NLA. We estimate longer gestation periods for Shenyang malls with slower-than-expected leasing and pockets of rent-free periods. Guidance is for restructuring efforts to be reflected in 4Q12-1Q13. We await a turnaround in mall operations, and a pick-up in shopper traffic with new tenants secured (most recently Carrefour, the anchor tenant at Longemont Mall).

Dividend yields secured

Secured dividend yields tide over a weak quarter. Ample earn-out funds alone are sufficient to ensure the same FY13/14 distributions as FY12, implying 7.6% dividend yields on current share price. Dividend payout ratio remains at 50% from FY13.