CLCT: Share price justifiably reflects risk
$CapLand China T(AU8U.SI)$ CLCT reported its business update this morning. After reviewing the SGX deck, Sir Bahamut thinks that the current share price fairly reflects the risk, as there are subtle hints of more DPU downside possibility.
3Q22: NPI -1.6% q-o-q despite revenue growth, Cost Burden hits bottom line
2Q22 Revenue and NPI was affected by 2 months of China lockdown, especially Shanghai; but 3Q22 was actually no better! Despite revenue increasing by 8.4% q-o-q, the NPI fell by 1.6%! 1H22 NPI Margin dropped from 70% to 64%
Source: Company's result disclosure
West China's declining performance
CLCT's Chengdu and Xi'an assets are hit the hardest, even for the so-called New Economy class assets (which are supposedly more resilient)
Bearish 2H22 outlook
A weaker sequential NPI (and NPI margin) is already bad to begin with, and we have not even start to address other problems such as FX and interest rate
- RMB have depreciated approximately 9% against SGD from the start of the year. DPU in SGD will be lesser?
- ~29% of the loans are based on floating rate, possible incremental interest expenses q-o-q? Sir Bahamut is unsure about this because the REIT didn't disclose how much of the floating loans are from China/SG, and China's Loan Prime Rate has dropped quite steadily.
- CLCT omitted CapitaMall Qibao's Occupancy from the retail portfolio (manager says under operational review). Occupancy more than likely dropped drastically given operation difficulty as the master lease is expiring soon under such drastic environment.
- Traffic and retail sales are 60%/76% of pre-COVID levels, and it is still vulnerable to sporadic closure orders from the government. From various sell-side reports, we already know that China's Golden Week retail sales are largely weaker y-o-y, and double-11 event don't sound any promising. Retail rents, which contribute 69% of the REIT's GRI, will most likely see further downward pressure if tenants' occupancy cost remained elevated.
The only bright spot about CLCT is the completed AEI from CapitaMall Wangjing, which may help to mitigate some pressure.
On paper, the trailing dividend yield is ~8.3% based on 1H22 DPU. In actual, if you considered further downside from the risk I mentioned above, the potential FY22 dividend yield could only be 7-8%. Considering SG's latest 6 months T-bill is 4.19%, is CLCT's yield spread justifiable given its China risk?
As usual, this is purely a sharing of opinions, does not constitute as any trade advice.
Modify on 2022-10-31 15:00
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