<First Take> 1H23 Results – Depreciating RMB throws salt on recovering wounds
- 1H23 gross revenue and NPI up 0.8% y-o-y to RMB 947.8m and RMB 663.7m respectively; DPU at 3.74 Scts (-8.8%) behind our full year estimates on forex losses and higher cost of financing
- Reversions back within the positive territory at 4% for both the retail and business park segment; Retail sentiments looks to be ahead with shopper traffic and tenant sales up 32% y-o-y and reversionary boost from AEI completions
- Business park segment sees a doubling of lease renewals in 2Q23 as opposed to 1Q23, supply headwind to persist within the Hang Zhou submarket, alongside slower lease momentum from InfoComm and E-commerce tenants
- We currently have a BUY call with TP at S$1.45; Estimates under review with more details after analyst briefing
1H23 Results
- Topline gross revenue up 0.8% y-o-y to RMB 947.8m, while NPI up 0.8% y-o-y to RMB 663.7m
- DPU of 3.74 Scts represents a -8.8% y-o-y decline primarily from foreign exchange losses and higher cost of debt
- Retail – Reversions positive at 4.1%, occupancy at 96.8% (up 0.4ppt q-o-q and 1.4ppt since Dec-22 lows)
- AEI works at Grand Canyon to convert anchor supermarket space into specialty stores sees completion in July 2023, while Rock Square AEI is expected to be completed in 3Q23
- Business Park – Reversions positive at 3.9%, leasing momentum more than doubled from 1Q23, Occupancy improved to 91.5% (from a low in 1Q23 of 89.8%)
- New leases were in the Electronics and Professional Services space (making up approximately half of all new leases signed, NLA), as opposed to Info (10%) and e-commerce (6%) tenants.
Have sentiments turned? Consumer sentiments looks to be ahead of business sentiments. 1H23 shopper traffic and tenant sales rose c.32% on a y-o-y, with approximately half of portfolio malls seeing 2Q23 tenant sales exceeding 2Q19 levels. We suspect that 1H23 reversions of 4.1% is partially boosted by AEI completions (at Yuhuating mall) and will continue to expect AEI completions in 2H23 at both Grand Canyon and Rock Square in the curation of higher-yielding specialty spaces to boost retail reversions towards year end. For the business park segment, supply within the Hang Zhou submarket continues to be an ongoing headwind as opposed to the Suzhou submarket, in lieu of slower new leases within both the info comm and e-commerce segments, we would like to get more clarity on the shifts in business environment and CLCT’s tenant positioning strategy in the BP segment during the analyst briefing later. Leasing momentums sees a significant pick up in 2Q23 as opposed to 1Q23 in terms of lease finalisation, with a decent pick up in occupancy for the quarter.
Foreign exchange a bigger concern to us as opposed to capital management. In our view, forex exchange has poured salt on CLCT’s recovering wounds this year. In the past year, the SGD has strengthened c.10% against the RMB, which has reflected strongly on the DPU line albeit a flat revenue and topline recovery in RMB terms. Forex exchange will continue to hurt DPUs going forward, which will tip the playing field for DPU recovery in 2H23 on a y-o-y comparison basis. On the capital management front, CLCT’s high offshore funding sources (c.80%) albeit a high fixed cost ratio of 74% will still see moderate exposure to hawkish offshore rates. Average cost of debt lands at 3.54% (up 6 bps q-o-q and 90 bps y-o-y). All refinancing requirements for FY23 has been secured and CLCT is in early negotiations with FY24 expiries which stands at c.15% for FY24 respectively, floating portion of loans primarily within offshore fundings will continue to see escalations in FY24.