CRCT – DBSV

Benefiting from active tenant remixing

• Results in line, positive rental reversions on higher tenant sales and shopper traffic
  
• Income vacuum from MZLY expected to be offset by rental expansion from other malls
  
• Maintain HOLD, TPS$1.78
  

Highlights

1Q13 results within expectations. Gross revenue and NPI, in Rmb terms, grew 6.6% and 4.6% respectively to Rmb200.7m and Rmb132m, on improved performance at all malls except MZLY, which is currently undergoing AEI. Tenant sales were up 11.1% and shopper traffic expanded 10.6% y-o-y. Distributable income, in S$, came in 4.2% higher to S$17.3m, translating to a DPU of 2.31Scts.

Successful tenant remixing strategies. The better performance was led by higher rental income on the back of an average 14.9% positive reversion over preceeding levels. CM Qibao, Saihan and Wuhu saw upward rental revisions of 7-10% on successful tenant remixing. Meanwhile, higher occupancy at Xizhimen and brand mix refinement exercise at Wangjing also lifted rents by 16-22%. This more than offset the drop in occupancy at MZLY to 72% as it ramps up its AEI.

Our View

Earnings growth q-o-q to moderate as MZLY AEI picks up pace. Going into the 2Q, we expect relatively flat q-o-q earnings growth as the MZLY AEI intensifies. The entire mall (except L1) is anticipated to close from Jul 13 to 2Q14. The income vacuum is expected to be offset by the strong rental reversions for the remaining malls. CRCT has a remaining 26.2% of income to be renewed for the rest of 2013 and a further 14% in FY14.

Low gearing. The trust has a low gearing of 25.4% and a cash hoard of S$82m on its balance sheet. This puts it in a good position to grow inorganically. Our current numbers have not factored in any potential acquisitions.

Recommendation

Maintain HOLD. We retain our HOLD call with a slightly higher TP of S$1.78 for CRCT. The trust is currently trading at 1.4xP/BV and 5.4-5.9% FY13/14F yields. We like CRCT’s ability to put in place initiatives that enable it to drive rental reversions.