OCBC Investment Research analyst Chu Peng has kept a “buy” rating on Capitaland China Trust (CLCT) with a lowered fair value estimate of $1.30 from $1.40.
During the 1HFY2022 ended June, CLCT’s revenue rose 12.7% y-o-y to $199.3 million while net property income (NPI) increased 15.9% y-o-y to $139.5 million. The higher figures were mainly driven by strong contributions from CLCT’s business parks and logistics assets, notes Chu.
“However, the growth was partially offset by weaker performance from the retail segment due to the lockdowns in China and higher rental relief for retail tenants,” she adds.
CLCT retained $3.6 million or 5% of distributable income in 1HFY2022 for prudent capital management. As such, 1HFY2022 distribution per unit (DPU) came in at 4.10 cents down 3.1% y-o-y.
For its retail portfolio, CLCT provided rental relief of 0.3 months equivalent of gross rental income to its affected retail tenants in 1HFY2022. As at 30 Jun 2022, retail portfolio occupancy stood at 95.5% with all malls having reopened after intermittent closures in 1HFY2022.
Retail rental reversions improved from -3.4% in FY2021 to -2.8%. Performances in April and May were severely impacted by stringent Covid-19 measures in China but had subsequently improved since June, observes Chu.
Tenants’ sales and shopper traffic had improved since June and recovered to around 73% and 58% of pre-Covid-19 levels in 1HFY2022. “Despite the impact of lockdowns, the performance of CLCT’s new economy portfolio remained largely resilient in 1HFY2022, supported by quality tenants and healthy demand,” Chu says.
Management is cautiously optimistic that the operating environment in China will improve in 2HFY2022, barring any unforeseen circumstances.
As at June 30, the occupancy rate of business park and logistics park portfolios was at 94.7% and 97.0% respectively. In terms of rental reversions, the business park and logistics park portfolios registered positive rental reversions of 6.4% and 6.5% respectively, benefiting from strong demand and policy support.
For the logistics parks, activities paused for 40-60 days at the Shanghai Fengxian and Kunshan Bacheng Logistics Parks but they continue to pay rent as they also function as warehouses.
Some risks Chu foresees include ??a possible sharp slowdown in retail sales in China and a slowdown in macroeconomic conditions that may dampen consumer and business sentiment.