- 1Q15 in line. Still wary of competition for six of its 16 malls.
- DPUs flat for two years as we factor in competition, weak retail sales & rising interest rates.
- SELL with unchanged DDM TP of SGD1.87. De-rating catalysts from potential DPU misses.
1Q DPU was in line, at 25% of our FY15 forecast. Revenue was flat at SGD167m, up 1% on a same-mall basis and 1.6% YoY. Property expenses moderated from its seasonal marketing push at year-end. They were down 16.2% QoQ and 1.6% YoY. Net property income rose 11.1% QoQ and 3.0% YoY to SGD117.7m. DPU was 2.68 SGD cts (-6.3% QoQ, +4.3% YoY).
Still wary of competition
We maintain that six of its 16 malls will soon face stiff competition. About 566k sf of new retail space from Capitol, Marina Square AEI, South Beach and Suntec AEI is bound to give Raffles City tenants some bargaining power, we reckon. Funan’s foot traffic could also be further diverted as the property is not integrated with its surrounding new developments. In Jurong, IMM and JCube are both not linked to the nearest MRT station or Jurong’s new hospital. Newer competing malls, Westgate-Jem-Big Box, are. In 1Q16, Hillion Mall will emerge in-between Bukit Panjang Plaza and the LRT. Meanwhile, retail sales remain tepid owing to a lacklustre economy and foreign-worker.
Flat DPUs;
SELL DPU is expected to decline 1.2% this year as we factor in the competition, weak retail environment and rising interest rates. DPU yields and P/BV are at -1SD and +1SD of their 12-year means respectively, which could be hard to maintain if DPU disappoints. SELL with a DDM TP of SGD1.87 (CoE 7.7%, LTG 2%).
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