DBS picks FCT, LReit, CLCT as proxies to a rebound in China tourist spending
ALL eyes are on China as recent signs of Covid-19 easing have ignited hopes of borders reopening sometime in 2023, giving the retail sector in 2023 a “much needed boost”, said DBS on Friday (Dec 9).
This comes as the rising costs of living and mortgages continues to add pressure, biting into consumers’ wallets in a more meaningful way, said analysts.
“We reckon consumers may look to tighten their wallets, prioritising spending on necessities over discretionary goods, like opting to cook at home more often than dining out.”
However, this could change when China finally reopens its borders, as historical data showed that Chinese travellers typically allocate a bigger proportion of their travel budget on shopping and food and beverage (F&B).
Based on 2019 figures, DBS analysts found that Chinese tourists accounted for about 28 per cent tourist receipts on shopping and F&B, as compared with 20 per cent contributed by inbound tourist arrivals overall.
The research house hence recommended investors to look towards retail players such as Frasers Centrepoint Trust (FCT) , for necessity suburban spending; Lendlease Global Comm Real Estate Investment Trust (LReit) for its Orchard exposure; and CapitaLand China Trust as a direct China proxy.
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Analysts noted that suburban and Orchard landlords have posted a spectacular recovery year to date as they continue to post robust tenant sales performance.
FCT, for example, saw sales average at roughly 110 per cent of normalised levels this year. SPH Reit’s Paragon mall reported FY2022 tenant sales at 89 per cent of normalised levels, while tenant sales at LReit’s 313@Somerset mall exceeded pre-Covid levels for the third quarter of its calendar year.
“We believe that the floodgates for retail spend will see a second wave with China’s reopening,” said DBS analysts in their report, given that Chinese tourists make up the largest market share in our inbound tourist arrivals.
They also spend about 55 per cent of their total travel budget on food and shopping, significantly more than Indonesian and Indian counterparts, who typically allocated 38 per cent and 29 per cent on these segments, according to DBS.
This puts Orchard and central malls as key recovery beneficiaries, while suburban malls could get a lift as necessity spending remains a big theme next year, said analysts.
The research house a “buy” call on all three Singapore-listed real estate investment trusts they recommended. FCT has a target price of S$2.60, LReit with a target of S$1, while CapitaLand China Trust has a target of S$1.45.
This represents a premium of 27.5 per cent, 39.9 per cent, 26.1 per cent for FCT, LReit and CapitaLand China Trust respectively, against the trading price of S$2.04, S$0.72, S$1.15 as at the midday trading break on Friday.
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