CRCT 4Q13 results

CapitaRetail China Trust: 4Q13 results in line CRCT reported 4Q13 results that were in line with ours and the street’s expectations.

Gross revenue climbed 8.9% YoY to S$41.2m, driven by revenue growth at CapitaMall Xizhimen, CapitaMall Wangjing and CapitaMall Saihan. Net property income rose 6.6% to S$25.8m.

Distributable income grew 5.6% to S$17.7m. DPU, however, fell 4.3% to 2.20 S cents due to a private placement in Nov 2012. We maintain our BUY rating on CRCT but place our FV of S$1.64 under review pending a meeting with management.

CapitaRetail China Trust distributable income climbs 7.5% YoY

2Q13 NPI up 6.0% YoY
CRCT’s 2Q13 results were in line with ours and the street’s expectations. Gross revenue climbed by 4.9% YoY to S$40.0m, net property income rose by 6.0% to S$26.4m and income available for distribution was 7.5% higher at S$17.9m. NPI would have grown 9.5% YoY excluding CapitaMall Minzhongleyuan (MZLY), which is undergoing AEI. Tenant sales growth and portfolio rental reversion and for the multi-tenanted malls, excluding MZLY, were good at 9.5% YoY and 17.3% respectively. DPU fell 1.2% YoY to 2.38 S cents, however, excluding the 57m units issued through private placement in Oct 2012, 2Q13 DPU would have been 2.58 S cents, up 7.1%. The portfolio valuation rose 4.4% from Dec 2012 to RMB7.9b as at 30 Jun.

Distribution Reinvestment Plan
The REIT manager is applying the Distribution Reinvestment Plan (DRP) established on 21 Mar 2013 to the 1H13 distribution. Unitholders can receive distributions in the form of fully-paid new units in CRCT, instead of cash. For this first DRP roll-out, CRCT will offer a 4.0% discount to the volume-weighted average trade price per unit of 10 market days up to the books closure date on 12 Aug 2013. The DRP will help CRCT fund its proposed acquisition of Grand Canyon Mall.

CapitaRetail China Trust strong demographic fundamentals

fair value of S$1.70.


Targeting 15% p.a. growth in retail sales
According to the 12th Five-year Development Plan for Domestic Trade released by the State Council recently, China aims to expand its retail sales of consumer goods to around RMB32tr (~US$5.05tr) by 2015, with an average annual growth rate of 15%. While the targeted growth rate is slightly lower than the 16.1% p.a. growth rate over the past decade that propelled retail sales to RMB18.4tr in 2011, 15% is still very good. China's retail sales rose 13.2% YoY in Aug, 0.1 percentage points higher than the growth rate in Jul. To make a simple comparison with a developed country, we note that for the month of Jun (the latest month for which data is available), Singapore’s retail sales actually decreased by 0.9% YoY.

Positive demographics means increasing “firepower”
We see the MoM decline in consumer confidence to be short-term; the Bankcard Consumer Confidence Index fell 0.5 percentage points MoM to 86.21 points in Aug. Having gathered demographic data on the cities that CRCT operates in, we believe that long-term fundamentals remain good for the retail industry. Beijing, which accounted for 67% of CRCT’s 2Q12 gross property revenue, saw overall retail sales grow 13.0% YoY in 1H12. While Beijing’s 1H12 expenditure per capita only expanded by 3.6% YoY, disposable income climbed