StarHill Global – CIMB

Wisma Atria stars in 3Q

Starhill’s 3Q12 was strengthened by Wisma Atria asset enhancements, completed in Jul 2012, offset by a weaker Chengdu mall. Income was retained for working capital. Toshin negotiations are still in progress but potential rental upside has already been factored in.

3Q/9M12 DPU met expectations at 25%/72% of our full-year forecast but was slightly above consensus at 26%/76%. We tweak DPUs downwards for lower margins in Japan and weaker China growth. But we raise our DDM target price as we lower the discount rate from 8.4% to 7.9%. We remain Neutral on valuation grounds.

Wisma enhancements complete

A stronger performance at Wisma Atria was largely behind the 5% yoy rise in 3Q12 revenue and 5.7% increase in NPI. After the completion of enhancements in Jul 2012, shopper traffic increased 7% qoq while retail sales went up 7% yoy. Positive rental reversions led to another quarter of NPI growth, at 24.3% yoy this quarter (2Q12: 11.5%). This was offset by a weaker performance at Chengdu mall where NPI declined 14% yoy due to a softening high-end retail market.

Update on Toshin

Following the appeal on the Toshin master lease, Starhill and Toshin have jointly requested the President of the Singapore Institute of Surveyors and Valuers (SISV) to designate three valuers for the rent valuation. This is as per directions given by the Court of Appeal in Sep, which include disclosure of instructions given to valuation firms for the seven valuation reports obtained previously. Management expects upcoming valuation to be closer to market rents. We have factored in 10% rental reversion.

China growth?

Acquisition opportunities are, in our view, hard to come by. Despite media report of sponsor YTL’s intention to expand its presence in China, we see this as a mid- to long-term positive for Starhill. China retail asset values remain lofty while luxury retail sales remain soft amidst a saturated market in certain cities.