Lippo Malls Indonesia Retail Trust

OCBC on 6 Aug 2012

Lippo Malls Indonesia Retail Trust’s (LMIRT) 1H12 DPU of 1.48 S cents was slightly below our expectations due to larger-than-expect impact from unfavourable forex movement. However, the portfolio operating metrics and outlook remain buoyant. As at 30 Jun, LMIRT’s overall occupancy rate remained steady at 94.7% vs. 94.5 in prior quarter. This is significantly higher than Indonesia’s retail industry average of 86.7%. We also understand that LMIRT launched two bonds in early Jul. This leads us to believe that another round of acquisitions may be imminent, given that its financial position was already very strong. This may potentially boost LMIRT’s DPU going forward. We maintain our BUY rating on LMIRT with revised fair value of S$0.45 (S$0.43 previously) as we tweak our rental assumptions in FY13-14 to reflect better growth outlook.

Larger-than-expected impact from forex movement
Lippo Malls Indonesia Retail Trust’s (LMIRT) reported 2Q12 NPI of S$30.7m and distributable income of S$17.1m, up 36.2% and 44.3% YoY respectively. Expectedly, the strong performance was driven by full-quarter contribution from Pluit Village and Plaza Medan Fair that were acquired in Dec 2011. DPU for the quarter came in at 0.79 S cents, down from 1.09 S cents as a result of the 1-for-1 rights issue in 4Q11. However, this represents a 14.5% QoQ improvement from DPU of 0.69 S cents achieved in prior quarter. For 1H12, NPI grew 37.1% YoY to S$61.6m, meeting 51.1% of full-year estimate. 1H12 DPU, on the other hand, was down 34.5% to 1.48 S cents, equivalent to 42.9% of our DPU projection. This is slightly below our expectations, due to larger-than-expect impact from unfavourable forex movement.

Outlook remains buoyant
Nevertheless, the portfolio operating metrics and outlook remain buoyant, in our view. As at 30 Jun, LMIRT’s overall occupancy rate remained steady at 94.7% vs. 94.5 in prior quarter. This is significantly higher than Indonesia’s retail industry average of 86.7%, based on Jones Lang Lasalle’s 1Q12 market review report. Management reiterated that Jakarta remains ‘under-shopped’ and that the retail industry will continue from the robust domestic economy and burgeoning middle class population. This is likely to continue to drive the demand for LMIRT’s retail space.

Maintain BUY
We also understand that LMIRT launched two bonds with an aggregate amount of S$250m in early Jul. This leads us to believe that another round of acquisitions may be imminent, given that its financial position was already very strong. While finance expenses may be higher in the immediate term, LMIRT’s DPU is likely to be boosted going forward. Gearing post bond issue is expected to remain healthy at 21% (9.3% in 2Q; no refinancing needs till 2014). Maintain BUY on LMIRT with revised fair value of S$0.45 (S$0.43 previously) as we tweak our rental assumptions in FY13-14 to reflect better growth outlook.