CapitaLand Retail China Trust

CapitaLand Retail China Trust | Buy

Target price: S$1.70

July 31 close: S$1.55

DBS Group Research, July 31

After the divestment of CapitaMall Anzhen, CapitaLand Retail China Trust (CRCT) has acquired a much younger asset, Rock Square, in the first-tier city of Guangzhou. Although the initial yield is lower in comparison, we believe the asset has greater growth potential and is also an indication of CRCT embarking on a growth path. In addition, with a recapitalised balance sheet, we believe that the time is ripe for CRCT to take on a more aggressive acquisition-led growth strategy.

Our target price (TP) is among the higher end of consensus estimates as we believe new acquisitions have higher growth potential. With a visible pipeline from the sponsor, we believe that it is an opportune time for CRCT to look at acquisitions.

We have priced in an acquisition of S$100 million – from S$250 million previously – to kick 2019 off with 4.5 per cent initial yield. We have also tweaked our estimates to account for the closure of CapitaMall Wuhu. Therefore, we revised our TP to S$1.70.

CRCT's gearing is around 32 per cent after the Rock Square acquisition, translating into a debt headroom of over S$550 million, which provides flexibility for further acquisitions. Key risks to our view include a significant depreciation of the RMB versus SGD, and a downturn in Chinese consumption.

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