Singapore | REITs

Asia Pacific Equity Research

CAPITALAND RETAIL CHINA TRUST | HOLD MARKET CAP: USD 936M

26 Oct 2015 Company Update

AVG DAILY TURNOVER: USD 1M

LOWERING OUR FV ON SOFTER CNY ASSUMPTIONS 3Q15 DPU grew 12.3% YoY Positive rental reversions of 10.9% in 3Q15 Lower FV and maintain HOLD

• • •

3Q15 results met our expectations CapitaLand Retail China Trust (CRCT) reported its 3Q15 results which came in within our expectations. Gross revenue increased 7.5% YoY to S$55.3m due largely to a stronger CNY vis-à-vis the SGD, as gross revenue in CNY terms fell 0.7% to CNY251.8m. The latter was due to continued impact on CapitaMall Minzhongleyuan (MZLY) from a road closure to facilitate the construction of a subway line and ongoing weakness at CapitaMall Wuhu, but partially offset by rental growth in its other multi-tenanted malls. DPU grew 12.3% YoY to 2.64 S cents. For 9M15, CRCT’s gross revenue jumped 9.0% to S$164.1m and formed 76.3% of our FY15 forecast; while DPU of 8.01 S cents represented growth of 9.1% and constituted 75.4% of our full-year projection.

HOLD (maintain) Fair value

S$1.48

add: 12m dividend forecast

S$0.107 S$1.50

versus: Current price 12m total return forecast

6%

Analysts Andy Wong Teck Ching, CFA (Lead) ● +65 6531 9817 [email protected] Eli Lee ● +65 6531 9112 [email protected]

Key information Market cap. (m)

S$1,305 / USD936.3

Avg daily turnover (m)

S$2 / USD1

Avg daily vol. (m)

1.1

52-wk range (S$)

1.295 - 1.78

Free float (%)

61.3

Shares o/s. (m)

842.2

Exchange

Operations largely still healthy Besides CapitaMall MZLY and CapitaMall Wuhu, CRCT’s other malls delivered positive YoY gross revenue and NPI growth in RMB terms in 3Q15. Overall portfolio committed occupancy remained stable at 94.8% (-0.2 ppt QoQ). Solid YoY tenants’ sales growth of 12.7% was recorded in 3Q15, while shopper traffic inched up 2.4%. Portfolio rental reversions came in at 10.9% in 3Q15, regaining some momentum as compared to 2Q15’s 4.6% rental uplift. This brings its 9M15 rental reversion figure to 8.9%. Nevertheless, we note that for the remainder of 2015, CapitaMall MZLY has 13.5% of its leases (as a percentage of the mall’s rental income) expiring. We believe this may exert a drag on CRCT’s rental reversions for 4Q15. In addition, we understand that a large tenant occupying 1,200 sqm of space has already indicated its intention to not renew its lease upon expiry in 4Q15.

CRCT SP

Reuters ticker

CRCT.SI

SGX code

Relative total return

1m

3m

Company (%)

8

-5

2

STI-adjusted (%)

0

2

4

FY16F

Gross revenue

160.1

203.3

218.0

225.6

Property operating expenses

-57.0

-70.9

-77.3

-78.7

Net property income

103.0

132.4

140.7

146.9

70.1

80.9

88.7

93.1

9.0

9.8

10.7

11.1

na

na

10.8

11.0

DPU yield (%)

6.0

6.5

7.1

7.4

P/NAV (x)

1.0

0.9

0.9

0.9

ROE (%)

12.0

11.2

6.0

6.3

Net income margin (%)

84.9

72.0

38.7

39.2

Income avail. for distribution DPU (S cents) Cons. DPU (S cents)

12m

Price performance chart

Industry-relative metrics FY15F

REITs CapitaLand Ltd. 33.6%

Top shareholder

Key financial highlights FY14

Financials

GICS Industry

Sources: Bloomberg, OIR estimates

FY13

AU8U

GICS Sector

Maintain HOLD As at 30 Sep 2015, CRCT had a healthy gearing ratio of 28.5%, with an average cost of debt of 2.98%. 74.0% of its total borrowings are fixed (83.7% if we exclude onshore RMB denominated loans). However, we are lowering our DDM-derived fair value estimate from S$1.64 to S$1.48 as we input lower CNY-SGD exchange rate assumptions in our model. Maintain HOLD.

Year Ended 31 Dec (S$m)

SGX

BBRG ticker

Note: Industry universe defined as companies under identical GICS classification listed on the same exchange. Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 005/06/2015

OCBC Investment Research Singapore Equities

Exhibit 1: Quarterly financial highlights 3Q15

3Q15

% Chg

2Q15

% Chg

(S$m)

(S$m)

(YoY)

(S$m)

(QoQ)

51.4

55.3

7.5%

54.3

1.9%

-19.2

-20.1

4.9%

-18.2

10.3%

Net property income

32.3

35.2

9.1%

36.0

-2.3%

Manager's mgmt fees, trust operating costs

-3.6

-3.7

3.0%

-3.8

-1.7%

Net finance costs

-5.2

-4.8

-8.3%

-4.8

-0.8%

Gain/(loss) from FX and cash flow hedges

0.2

-0.2

nm

0.1

nm

Revaluation gain on investment properties

0.0

0.0

nm

29.8

nm

Total return before tax

23.6

26.5

12.4%

57.3

-53.8%

Total return after tax

16.6

18.5

11.3%

41.7

-55.6%

Income available for distribution

19.5

22.3

14.2%

22.9

-3.0%

DPU S cents

2.35

2.64

12.3%

2.73

-3.3%

Gross revenue Property operating expenses

Sources: REIT Manager

Exhibit 2: CRCT’s rental reversion trend

Source: REIT Manager

Exhibit 3: CRCT’s rental reversion trend

Source: REIT Manager

2

OCBC Investment Research Singapore Equities

Company financial highlights

Income statement Year Ended 31 Dec (S$m)

FY13

FY14

FY15F

FY16F

160.1 -57.0 103.0 -9.8 -10.2 2.3 99.2 184.5 135.9 70.1

203.3 -70.9 132.4 -14.0 -21.1 1.3 104.8 203.5 146.4 80.9

218.0 -77.3 140.7 -14.2 -21.2 0.0 0.0 105.3 84.3 88.7

225.6 -78.7 146.9 -14.5 -21.8 0.0 0.0 110.6 88.5 93.1

FY13

FY14

FY15F

FY16F

2,058.1 0.0 105.5 2,184.3 712.3 2.7 970.4 1,187.0 26.9 2,184.3

2,250.8 0.0 86.6 2,358.1 671.7 2.7 980.2 1,349.7 28.1 2,358.1

2,260.8 0.0 94.1 2,376.3 681.7 2.7 993.6 1,353.6 29.1 2,376.3

2,270.8 0.0 98.8 2,391.5 691.7 2.7 1,005.5 1,355.8 30.2 2,391.5

FY13

FY14

FY15F

FY16F

135.9 -35.6 35.6 68.6 -143.3 34.7 -40.0 4.9 140.5 105.5

146.4 -18.5 -6.1 111.4 -16.7 -117.3 -22.5 3.7 105.5 86.6

84.3 50.5 2.5 116.3 -9.2 -99.7 7.4 0.0 86.6 94.1

88.5 52.4 1.5 120.3 -9.1 -106.4 4.7 0.0 94.1 98.8

Key rates & ratios

FY13

FY14

FY15F

FY16F

DPU (S cents) NAV per unit (S$) PER (x) P/NAV (x) NPI margin (%) Net income margin (%) Gross gearing (%) DPU yield (%) ROE (%) ROA (%)

9.0 1.5 8.6 1.0 64.4 84.9 32.6 6.0 12.0 7.1

9.8 1.6 8.5 0.9 65.1 72.0 28.5 6.5 11.2 6.4

10.7 1.6 14.8 0.9 64.6 38.7 28.7 7.1 6.0 3.6

11.1 1.6 14.1 0.9 65.1 39.2 28.9 7.4 6.3 3.7

Gross revenue Property operating expenses Net property income Manager's mgmt fees, trust operating costs Net finance costs Gain/(loss) from FX and cash flow hedges Revaluation gain on invstmt properties Total return before tax Total return after tax Income avail. for distribution

Balance sheet As at Dec 31 (S$m) Investment properties Properties under development Cash (including restricted cash) Total assets Debt Provision for taxation Total liabilities Unitholders' funds Minority interests Total equity and liabilities

Cash flow statement Year Ended Dec 31 (S$m) Profit before taxation Adjustments Change in working capital Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Change in cash Effect of exchange rate changes Cash at beginning of period Cash at end of period

Source: REIT Manager, OIR forecasts

Company financial highlights

OCBC Investment Research Singapore Equities

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated, reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally. Privileged / confidential information may be contained in this document. If you are not the addressee indicated in this document (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this document that do not relate to the official business of OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations shall not be understood as neither given nor endorsed.

RATINGS AND RECOMMENDATIONS: - OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented. - OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. - As a guide, OIR’s BUY rating indicates a total return in excess of 10% based on the current price; a HOLD rating indicates total returns within +10% and -5%; a SELL rating indicates total returns less than -5%. - For companies with market capitalization of S$150m and below, OIR’s BUY rating indicates a total return in excess of 30%; a HOLD trading indicates total returns within a +/-30% range; a SELL rating indicates total returns less than -30%.

Co.Reg.no.: 198301152E Carmen Lee Head of Research For OCBC Investment Research Pte Ltd

Published by OCBC Investment Research Pte Ltd

Important disclosures