CMT – DBS

Signing of a top Chinese player

Indirect entry into the PRC retail market. The PRC retail market has been experiencing strong demand. Retail sales have been growing by about 12.5% per annum for the past 10 years, outperforming the GDP growth at about 9.7%. Retail rental growth is expected to grow between 5-8% for the next five years and we like the exposure in PRC retail malls from CMT’s perspective.

Inheriting CRCT’s robust pipeline. With ROFR to acquire assets under two Capitaland funds in CapitaRetail China Development Fund (“CRCDF”) and CapitaRetail China Incubator Fund (“CRCIF”), CRCT now holds a proprietory pipeline of acquisitions to more than 70 retail malls. They cover over 3.2m sqm of gross retail space which when injected, would see CRCT expand its portfolio by more than six fold. Based on the sheer size of the acquisition pipeline for CRCT, CMT now possess an alternative channel of growth, leveraging on the strong growth of the PRC retail property market.

Upgrading to Buy, TP S$ 3.30 based on sum of parts valuation. In view of expected robust growth for CRCT, we now view that a sum-of-parts valuation is more appropriate, pricing the cash flows of CMT’s portfolio as well as upside from the strategic stake in CRCT. We now peg our fair value of CMT based on 1) DCF valuation of CMT’s portfolio and 2) marked-to-market value of CRCT. Therefore in view of strong acquisition pipeline, further value creation from AEI initiatives, and active leasing management driving asset yield, we are positive on CMT with an added avenue for growth now, leveraging on exposure to China retail property sector through CRCT. Therefore we upgrade our recommendation from Hold to Buy, TP S$ 3.30 based on our new sum-of-parts valuation for CMT.