• Revenue and net profit in line with our forecasts.
• Same-mall YoY tenant sales growth stable at 6.2% for China, CAPL’s biggest market.
• 1Q18 China residential sales sold had halved YoY due to less units available for sale. Only 4% of all units launched remain unsold.
• Serviced Residences RevPAU grew 5% YoY, continuing the momentum from 4Q17.
• Maintain Accumulate with unchanged TP of S$4.19.

The Positives

+ Same-mall YoY tenant sales growth stable at 6.2% for China, CAPL’s biggest market. Tier 1 and 2 cities saw higher sales growth vs lower Tier cities. China accounts for 60% of CAPL’s total retail assets by valuation. Smaller markets in Japan and Malaysia also saw low-to-mid single digit growth. Singapore was only region with slight negative sales growth.

+ 1Q18 China residential sales sold had halved YoY due to less units available for sale. Only 4% of all units launched remain unsold. 998 units were sold in the quarter, half of that one year ago, due to less units available for sale. With 6,000 units ready for launch by end FY18, we expect sales numbers to pick up over the next few quarters.

+ Serviced Residences RevPAU grew 5% YoY, continuing the momentum from 4Q17. Despite the weak RevPAU performance from Ascott REIT, overall Group RevPAU grew 5%, led by strong performances in Europe, Singapore and China. China (40%) and SE Asia/Australia (30%) are the biggest markets for the Group by property value.

The Negatives

–  Tenant sales growth for Singapore malls (36% of total retail portfolio by value, second biggest market after China) remains sluggish. Same-mall tenant sales stayed muted with a slight negative -0.1% growth vs 0.9% in FY17. Sales have generally lagged the general retail sales index which grew on average 6.5% (ex-Motor) in the first two months of the year.  

Outlook

With >80% of CAPL’s assets being investment properties (predominantly in Singapore and China) contributing to recurring income, CAPL’s earnings outlook remain stable.  Residential sales worth RMB10.6bn in China and S$343mn in Vietnam are expected to be completed and handed over in the next 9 months, which will provide further support to earnings in FY18. Retail sales in CAPL’s Tier 1 and 2 malls are stabilising around mid-single digits growth and we expect the three new Raffles City integrated developments in China which opened in FY17 to boost recurring income growth in FY18 as occupancy improves. We estimate annualised operating PATMI for the recurring income segment alone to be c.S$740mn, sufficient to cover c.1.5x FY17’s dividend of 12c/share.

Maintain Accumulate with an unchanged TP of S$4.19.

We maintain our Accumulate rating with an unchanged target price. Our Target price translates to a P/NAV ratio of 0.93.

Figure 1. RNAV table