On the possibility of acquisitions, CEO Wee Hui Kan told us that his team monitored the market constantly. He gave us no firm indication of an acquisition, but said that after the recent unit-price recovery, acquisitions would certainly be more feasible now (compared with six months ago). The management also noted that the credit markets (onshore and offshore) had improved.
2Q FY09 net-property income (NPI) was 1% below our estimate, due almost entirely to the depreciation of the Renminbi against the Singapore dollar (compared with 1Q FY09). A much lower-than-expected finance cost was the positive swing factor for the bottom-line, as the average cost of debt declined to 2.3% from 2.9% for 1Q FY09.
Our six-month target-price, based on our RNG valuation method, of S$1.32, is unchanged. We have revised down our core-operating distribution forecast for FY10, and have adjusted down our (long-term) cost-of-debt assumption to 4.2% (from 4.5%). The target-price to June 2009 NAV (of S$1.16) would be 1.14x.
We have revised down our DPU forecasts by 2.7% for FY09, 2.9% for FY10, and 2.5% for FY11, after fine-tuning our NPI forecasts for each of the assets.
We maintain our 2 (Outperform) rating, and believe a DPU-accretive acquisition announcement (within the next six months) would trigger unit-price outperformance, especially if the equity and credit markets continue their recovery in 2H09.
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