Brokers’ take

Compiled by Navin Sregantan

CAPITALAND RETAIL CHINA TRUST (CRCT) | BUY (INITIATE)

MARCH 21 CLOSE: $1.51

TARGET PRICE: $1.61

KGI Securities, March 21

Chinese disposable urban income has more than tripled over the last 12 years.

The revision of individual income tax laws implemented since the start of this year might act as an additional boost to future disposable income.

Retail malls continue to compete for shopper traffic through experiential shopping, Omni channel strategies and digital marketing.

We see synergies between CRCT and other CapitaLand mall real estate investment trusts (Reits) that have tried and tested similar concepts and technologies.

We expect asset recycling efforts in Hohhot, Mongolia, to pay off by end-2020.

There, the Reit will divest Saihan mall and acquire Yuquan mall at a 5.6 per cent discount to market value. We expect asset recycling efforts in Hohhot to pay off by end-2020.

Minzhongleyuan and Wuhu malls - under stabilisation - could be divested in one to two years.

Capital unlocked could be put into better use through the acquisition of yield-accretive assets.

Key risks include a slowing Chinese economy that could potentially dampen consumer sentiment further and result in the delay of consumption.

We also see negative rental reversions as a threat against the two malls under stabilisation as well as Qibao mall, which will see new competition within its vicinity.

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STARHILL GLOBAL REIT | BUY (MAINTAINED)

MARCH 21 CLOSE: $0.70

TARGET PRICE: $0.78

RHB Research Institute, March 21

Starhill Global Reit, a sector top pick, is among the cheapest S-Reits.

Its Malaysian master lease extensions of nine to 191/2 years provide income certainty at the slight expense of upfront capital expenditure of RM175 million (S$58 million) for asset enhancement initiatives at Starhill Gallery.

Management also explained that it has explored various options for Starhill Gallery and Lot 10 from direct undertaking of operations to sourcing for another master lessee with different concepts.

However, management noted that a master lease extension was best, in terms of strengthening mall positioning and securing earnings sustainability.

Due to the oversupply of retail malls in Kuala Lumpur, we believe the long master lease extensions will mitigate uncertainties/challenges in the retail sector.

Key catalysts are expected turnaround in the overseas and Singapore office portfolio.

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