Investment Merits
Structural challenges:
We initiate coverage with a NEUTRAL rating and a DDM-derived target price of S$2.01. We have assumed a risk free rate of 3.1% and terminal growth of 1.5% in our forecasting.
Company Background
Singapore’s first and largest retail REIT, CMT owns 16 shopping malls across Singapore, making them the largest shopping mall owner in the country with a 14% market share. 75% of CMT’s malls are strategically integrated with MRT stations, with the rest a maximum 5 minute walk away.
With these ideal locations and a heavy focus on necessity shopping (79.5%), CMT has been able to maintain an average occupancy of 98.8% over the 15 years since listing. Portfolio occupancy was remarkable even through the GFC years in 2008-2009 at 99.7% and 99.8% respectively, highlighting the resilience of CMT’s well located malls.
Figure 1: CMT’s well located malls at important transport nodes
Source: Company
Investment Merits
Singapore’s retail sales suffered its third consecutive year of contraction and weakest annual performance since 2009. 1Q17 did not fare much better as Retail Reits CMT and FCT reported YoY drops in tenant sales, albeit with better March numbers vs Jan-Feb. Amid the glut of pessimistic retail sales data, we expect a turnaround going forward in 2017. Singapore’s GDP growth has picked up from what we believe was the inflexion point in 3Q16.
Figure 2: GDP growth picked up since 3Q16 after Singapore narrowly missed a technical recession.
Consumer sentiment looks set to improve backed by healthy household balance sheets, supported by a resilience and turnaround in property prices in 2H17. This comes after 14 consecutive quarters of decline since 4Q13. Residential assets make up 44% of household balance sheets. The government’s first “easing” of property cooling measures in 1Q17 has done much to improve sentiment. We expect a bottom and turnaround in property price from 2H17.
Our rationale for expecting a bottoming and improvement in home prices stems from:
Since 1985, there have been 9 years where the Retail Sales Index (ex-motor vehicles) registered declines. All have occurred in years where property prices are dropping, except in 1991 and 2009. The correlation between home prices and retail spending and the impact it has on sentiment and thereby consumption is therefore significant.
Figure 4: Since 1985, previous declines in retail sales were accompanied by drops in property prices, except on 2 occasions in 1991 and 2009
2. CMT is a market leader in Singapore as a mall operator cum owner, with heavy focus on suburban market with strong catchment crowds, and resilient necessity spending. Its proactive approach in improving shopper experience and strategically located malls have led to it consistently maintain a near full portfolio occupancy, even though the GFC years in 2008-09.
In embracing technology and innovative solutions for improved shopper experience and better operational efficiency, CapitaLand has launched various initiatives, amongst which:
Figure 5: CMT’s proactive strategies in enhancing shopper experience and strategically located malls enabled it to consistently maintain a near full portfolio occupancy
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
