Poised to break out from COVID-19
- A reputable leading high-end luxury mall operator and property manager in China that is well-supported by a top 10 SOE developer
- Concerns over impact from COVID-19 lockdowns and rental concessions overplayed; among the first to benefit from emerging physical market recovery
- More visible drivers to drive share price; initiate BUY with HK$45.22/sh TP
Share price to re-rate.
CR MixC has range-traded between HK$35-40 during the past quarter given 1) lack of share price catalysts as the property sector still faced turbulence; and 2) concerns on potential P&L impact from COVID-19 lockdowns. We believe these concerns will fade and the outlook should improve in the upcoming two quarters. We anticipate to see a sequential recovery in the physical property market and China’s economic outlook should stabilize. For the latter concern, regulators’ recent response to new COVID-19 cases has been less aggressive, and our scenario analysis signals manageable impact from the
provision of rental concessions. We believe CR MixC’s current price offers a decent entry point for investors.
Where we differ? Impact from COVID-19 and rental concessions should be manageable.
The bear case in our scenario analysis – assuming all CR MixC’s malls will be affected by lockdown measures and all tenants to receive six months of rent relief – will only translate to c.2% downside to our FY22F earnings and should not impact our 25 % 3-year earnings CAGR forecast.
Catalysts to watch:
Higher monthly rental income of CR Land’s malls; CR Land’s improving presales performance; rebound in retail sales; CR Land’s faster land acquisition pace; rental concession
Valuation:
Our TP of HK$45.22/sh is derived based on a two-staged DCF model, which implies 43x/32x FY22/23F PE.
Key Risks to Our View:
Tougher than expected lockdown measures upon COVID-19 resurgence; larger than expected rental concessions; quality risks in projects acquired via M&A.