Excerpts from DBS Research report
Trending Sector
Companies with Chinese retail exposures
| China’s March CPI may be positive for these 2 stocks |
Photo: CapitaLand China Trust
- Two datapoints in China’s March CPI print make a positive read for companies with Chinese retail exposures, like CapitaLand China Trust (CLCT) and DFI Retail (DFI)
- Services CPI improved to +0.8% y-o-y, signalling a pick-up in mobility as well as the resumption of in-person services, following the shift away from zero-COVID
- Daily, necessity consumption returning to normalcy: Food (+2.4% y-o-y) was the main inflation driver; clothing and footwear was up 0.8% y-o-y, the fastest since the pandemic (Dec 19)
- Services CPI improved to +0.8% y-o-y, signalling a pick-up in mobility as well as the resumption of in-person services, following the shift away from zero-COVID
- Our analyst expects earnings recovery for CLCT from hereon:
- 44% of FY22 gross rental income from the essential services (22% F&B, 5% supermarket, and 4% services) and fashion (13%) sectors, under CLCT’s classification
- Q1FY23 should see (i) the removal of the last overhang of higher rental rebates and (ii) positive reversions from phased AEI completions for Yuhuating and Grand Canyon
- 44% of FY22 gross rental income from the essential services (22% F&B, 5% supermarket, and 4% services) and fashion (13%) sectors, under CLCT’s classification
- We see DFI’s exposure in China restaurants (Maxim’s) and retail supermarkets (Yonghui) as beneficiaries, on the cusp of a multi-year earnings recovery:
- FY22 operating profits for the restaurant business is at only 46% of pre-COVID levels
- Yonghui is to see improved profitability in FY23, in the absence of stringent COVID controls as well as easing online market competition
- FY22 operating profits for the restaurant business is at only 46% of pre-COVID levels
- Further monetary and/or fiscal easing by the Chinese authorities, given the benign inflation (+0.7% y-o-y), will be a further positive for these stocks
