CRCT – AmFraser

Potential Headwinds On Near‐Term Horizon

Investment Highlights

Q212 Marks Strong Quarter Of Growth

CapitaRetail China Trust (CRCT) recorded growth of 18.2% YoY in its 2QFY12 gross revenue. CRCT's shopper traffic climbed by 26.4% YoY and its tenant sales increased by 13.1% YoY in 2QFY12, despite an uncertain macroeconomic climate in China. Contribution from recently‐acquired CapitaMall Minzhongleyuan and higher rental sales across its multi‐tenanted malls were major drivers underpinning CRCT's 2QFY12 growth.

Healthy Rental Reversions

2QFY12 was also a quarter of good rental reversions for CRCT. CRCT recorded a total of 223 new leases and renewals in the quarter and observed a portfolio rental reversion of 15.2% YoY. CRCT's ongoing initiatives at improving its tenant mix by attracting big names such as Urban Renewal and UNIQLO could provide potential upside on overall tenant sales and rental reversions. According to CRCT, tenant sales growth at CapitaMall Xizhimen was at the high single‐digit range and management believes there is scope for further enhancement to its existing tenant mix.

Higher Revenue Translating Into Profitability Gains.

CRCT’s net property income grew by 15.0% YoY in 2QFY12. While this result was partly supported by the contribution from CapitaMall Minzhongleyuan, we observed that strong growth from CapitaMall Qibao, CapitaMall Saihan and CapitaMall Wuhu played a part as well.

Potential Near‐Term Headwinds Ahead.

Trading at 1.1x price‐to‐book and with a forward dividend yield of 6.7% (according to Bloomberg consensus estimate), CRCT is relatively expensive compared to its industry peers. Nearterm risks appear to be weighted to the downside and we would view CRCT’s recent quarterly results with cautious optimism. A Chinese macroeconomic slowdown is likely to weigh on near‐term consumer sentiment and put downside pressure on discretionary spending. Generating the bulk of its rental sales from consumer discretionary sectors such as department stores and apparel, CRCT is not immune to the macroeconomic headwinds in China. CRCT is already witnessing a slowdown in sales in the sporting and fashion trade, according to management.