CRCT – DBSV

Worth a re-look

• Strong operating metrics underscores AEI success
  
• Acquisition of Grand Canyon Mall likely accretive
  
• Maintain Buy, TP revised to S$1.60
  

Strong operating metrics underscores AEI success

Coming into its own. The recent strong 2Q results highlighted that operating metrics are tracking closely to sales growth in China. This demonstrates CRCT’s successful key asset enhancement initiatives which had resulted in expanding tenant sales as well as shopper traffic, resulting in the trust’s ability to boost rental reversions. This solid track record bodes well for its upcoming AEI at Minzhongleyuan Mall in Wuhan. We believe its ability to generate better asset returns through this route would provide the trust with a strong inbuilt engine for growth and catalyst for share price performance going forward.

Proposed acquisition of Grand Canyon Mall in Beijing to be accretive. Grand Canyon Mall is the trust’s first third party acquisition and demonstrates CRCT’s ability to work with CMA to leverage on its platform and network. The under-rented mall is expected to be earnings accretive when the deal is completed in 2Q14, with NPI yield projected to rise from the present 3.5% to 5% and likely to reach 6-7% by 2016-17 when its leases are fully re-contracted. CRCT plans to fund this Rmb1.82bn acquisition via existing cash, new debt as well as equity. The recent roll out of its Dividend Reinvestment Plan offers unitholders the flexibility of dividend options while the trust can also conserve cash for its acquisition.

Maintain Buy. We retain our Buy call with an adjusted DCF-backed TP of S$1.60, as we adjust our sector-wide beta up by 0.05x and adopt a higher through-the-cycle interest cost of 3%. CRCT offers investors a pure China consumption driven exposure, which we believe will remain robust, through its portfolio of retail malls. CRCT’s share price had weakened in recent weeks in tandem with the broader market, and at the current share price, valuations look attractive. The stock provides a FY13-14F yields of 6.8-7.2% and total return of 23%.