OCBC on 28 June 2012
The rent from the four malls that CRCT owns in Beijing contributed 69% of 2011’s revenue. According to Savills, the supply of shopping mall space in Beijing is set to increase by a significant 17% this year, or some 1.06m sqm. Despite this increase, we believe that CRCT’s Beijing malls are well placed to compete. CapitaMall Xizhimen, is located at the transportation hub Xizhimen and sees a daily footfall of 85k-90k people, which gives it much bargaining power. CapitaMall Anzhen and CapitaMall Shuangjing are on long-term master lease structures, thus their rents should be fairly immune to the upcoming supply. While shopping mall supply could increase by ~21% in 2012 in the area, we believe CapitaMall Wangjing has an incumbent’s advantage, being voted “Most Influential Mall in Wangjing Area” by Beijing News in 2010. We maintain our BUY rating on CRCT and S$1.44 fair value.
Growth in Beijing retail space supply
Beijing’s retail market has multi prime retail areas, including Wangfujing (Dongcheng district), CBD (Chaoyang district) and Zhongguancun (Haidian district). According to Savills, the supply of shopping mall space in Beijing is set to increase by 17% this year, or some 1.06m sqm. The majority of new projects in prime areas have achieved strong pre-commitment rates of 70%-90%, while projects in non-prime areas are more likely to face pressure on the occupancy front.
CRCT’s malls enjoy good traffic flow
The rent from the four malls that CRCT owns in Beijing contributed 69% of 2011’s revenue. The remaining five malls are spread over five cities. One of the Beijing malls, CapitaMall Xizhimen, is located at the transportation hub Xizhimen and sees a whopping daily footfall of 85k-90k people, largely due to transient traffic. At a prime location, Xizhimen has substantial bargaining power. The other three Beijing malls are located in the sizable Chaoyang district (~475 square kilometers). CapitaMall Anzhen and CapitaMall Shuangjing are on long-term master lease structures, thus their rents should be fairly immune to the upcoming supply. CapitaMall Wangjing is located in an unofficial “Korea Town” and services many white-collar workers. While shopping mall supply could increase by ~21% in 2012 in the Wangjing area, we believe the mall has an incumbent’s advantage, being voted “Most Influential Mall in Wangjing Area” by Beijing News in 2010.
Beijing a focal point for brand penetration
As the capital, Beijing is still a key city for international brand penetration. Apart from new entrants, many established retailers like Chloe, Valentino, Godiva and Tesco are pursuing aggressive expansion. The good positioning of CRCT’s malls, especially Xizhimen, places them in good stead to attract quality retailers even as retail space supply grows.
Maintain BUY
We maintain our BUY rating on CRCT and S$1.44 fair value. CRCT is offering a fine FY12F dividend yield of 7.1%.
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