Brokers' take: DBS trims CLCT target price on headwinds for retail portfolio

DBS Group Research has lowered its target price for CapitaLand China Trust : AU8U 0% (CLCT) to S$1.55 from S$1.60 on concerns over the current lockdown scenario potentially expanding to Beijing, where a bulk of CLCT’s retail exposure is. 

But while short-term weakness could sustain for the rest of the year, DBS’s analysts said in a report issued Wednesday (Apr 27) that CLCT’s retail portfolio was stress-tested back in H1 2021, coinciding with Beijing’s lockdown. They said it showed then that a retail overhang can dissipate fast with a sharp rebound in occupancy in a matter of a quarter’s time.

Moreover, the approximately 30 per cent expansion in exposure to new economy assets – that are on around 3 to 4 per cent rental escalations and registering single-digit, positive reversions – incorporate greater income visibility to offset the downside risk from retail, they wrote.

They have maintained a “buy” call for CLCT, as they believe markets have not given the real estate investment trust the benefit of their new economy exposure, which has boosted resilience in portfolio earnings in recent quarters. 

“Forward yields are compelling at 7.6 per cent, based on current trading levels,” they said.

This comes after CLCT on Tuesday posted a 30.4 per cent rise in its net property income to 344.5 million yuan (S$72.2 million) for its first quarter ended March 2022, from 264.2 million yuan a year ago.

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The analysts have reduced their FY2022 distribution per unit estimates from 9.49 Singapore cents to 9.01 Singapore cents, as they priced in rental rebates for half a month across the retail portfolio and flat retail reversions for FY2022. 

Units of CLCT were trading flat at S$1.18 as at 11.45 am on Wednesday.