CapitaRetail China Trust

CapitaRetail China Trust: OCBC upgrades to Buy but reduce TP to $1.58 from $1.76. House note that as part of the general sell-down in the markets, CRCT's unit price has fallen 25.2% since the peak of S$1.865 on 11 April 2013. Apart from the prospect of early tapering of QE by the Fed, CRCT has been affected by concerns of a moderation in retail sales growth from: 1) A de-acceleration of China’s economy and 2) President Xi Jinping’s campaign against conspicuous consumption. According to media reports, some Chinese retail landlords have recently begun offering preferential leasing terms for mass-market fashion brands, whereas previously such terms were only reserved for luxury brands. The malls which are facing such pressure typically have poorer locations in second-tier and third-tier cities. House note that CRCT’s malls are in good locations, with the bulk of assets in Beijing. Furthermore, the occupancies in CRCT’s malls are healthy (96%-100%, excluding those which are undergoing tenancy adjustments and AEI). CMA which runs the CRCT malls, has the experience and size to better weather the slowdown in China. Factoring in the more challenging operating environment. House reduces fair value from $1.76 to $1.58 but upgrade CRCT to BUY from hold on valuation grounds.