MARKET PULSE: CapitaRetail China Trust, ECS Holdings (18 May 2012)

Stock Name: CapitaRChina
Company Name: CAPITARETAIL CHINA TRUST

Research House: OCBC

Price Call: BUY

Target Price: 1.44

Stock Name: ECS
Company Name: ECS HOLDINGS LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 0.555

MARKET PULSE: CapitaRetail China Trust, ECS Holdings

18 May 2012

KEY IDEA CapitaRetail China Trust: Growing with the Chinese consumer Located in mainland China, CRCT's retail malls are positioned as one-stop family-oriented shopping, dining and entertainment destinations for areas with large population catchment. Based on FY11 figures, CRCT's portfolio has an average property yield of 6.5% (based on book valuation), which is attractive compared to Singapore retail property yields of around 5-6%. Increasing urbanization and the continued growth in household disposable income serve as powerful long-term drivers for retail sales, which should grow faster than the GDP for at least the next few years. With some 28% of its leases by gross rental income due for renewal this year, CRCT could see significant positive rental reversions. We initiate with a BUY rating and S$1.44 fair value based on a dividend discount model analysis. (Sarah Ong) MORE REPORTS ECS Holdings: Margins under pressure ECS Holdings (ECS) reported 1Q12 revenue of S$901.6m (+7.1% YoY) which met our expectations. PATMI slumped 41.0% YoY to $6.2m. Excluding forex and other exceptional items, we estimate that core earnings would have declined 36.1% YoY to S$6.6m, forming 15.2% of our full-year projections. This was below our expectations, due to weaker-than-expected gross margin. Looking ahead, while we expect ECS's performance to pick up more strongly in 2H12, ongoing macroeconomic uncertainties would continue to form a major risk to its operations, in our view. Coupled with the weak 1Q12 results, we cut our FY12 core PATMI forecasts by 19.9% (FY13 by 17.5%). But even with a lower fair value of S$0.555 (previously S$0.69), we maintain BUY as valuations remain undemanding. (Wong Teck Ching Andy)

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