Will escalating China woes derail CRCT’s growth story?

It will benefit from increased consumption.

CapitaLand Retail China Trust is still poised for growth despite China’s slowing economy, according to a report by DBS.

Although investors are currently fearful of the slowdown in China’s GDP growth, DBS said that RCT should remain well positioned as it should benefit from China’s move towards a consumption-based economy. This trend is illustrated by the 10.7% jump in retail sales for FY15, faster than the overall GDP growth of 6.9%.

“Going forward, we understand CRCT remains confident of generating positive rental reversions (in the “single-digit range), although lower than the 15-20% achieved over the past few years,” DBS said.

The lower level of rental reversion is also due to CRCT making a strategic decision to attract certain tenants as part of its constant tenant remixing to sustain the performance of its malls in the long term, DBS noted.

“CRCT’s earnings have been negatively impacted by the road closures surrounding Minzhongleyuan over the past two years. As these works are scheduled to be completed by end-2016, we believe we are approaching an inflection point for the mall’s earnings,” the report added.