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ALP REIT INVESTMENT CLUB
BHG retail Reit/ BMGU
(12March2016) close: S$ 0.80
12M-Target price: S$0.70
1.) Type of Reit: Retail Reit, with an initial focus on China.
2.) Number of property in the portfolio: BHG Retail REIT’s initial portfolio comprises five retail properties strategically located in Tier 1, 2 and other cities of significant economic potential in China. It consists of:
- 60.0% interest in Beijing Wanliu Mall (北京华联万柳购物中心) in Beijing.
- Hefei Mengchenglu Mall (北京华联合肥蒙城路购物中心) in Hefei, Anhui Province.
- Chengdu Konggang Mall (北京华联成都空港购物中心) in Chengdu, Sichuan Province.
- Dalian Jinsanjiao Property (北京华联大连金三角店) in Dalian, Liaoning Province.
- Xining Huayuan Mall (北京华联西宁花园店) in Xining, Qinghai Province.
3.) Top 5 properties that generates the highest revenue (Decreasing order): Beijing Mall(42.9%), Hefei Mall (22.9%), Xining Mall (18.9), Dalian Property (9%) & Chengdu Mall (6.3%) .
4.) Challenges: In terms of the valuations, it’s not extremely compelling versus its closest listed peer on SGX which is CapitaRetail China Trust. BHG trades at 6.3 per cent at the FY16 distribution yield and 1x price to book. This is compared to CapitaRetail, 7.4 per cent distribution yield and 0.9x price to book. In terms of valuations it’s not extremely attractive as compared to its closest competitor.
5.) Strengths: Per capita disposable income of urban residents also experienced similar strong CAGR of 11.1% for the same period. This growth in disposable income gives a clear indication of the increasing purchasing power of the PRC’s residents, and more importantly, their increasing ability to consume goods and services. This bodes well for retail Reit like BHG Retail Reit.
6.) Significant events: BHG Retail REIT listed on mainboard on 2015.
7.) TABLE: (Data is limited as the group only listed on 2015.
8.) Recommendation: Hold. In terms of the big picture, the group would achieve potential upside due to the increasing purchasing power of the PRC’s residents. However, whether it would have the ability to fend off the threat from the rising tide of e-commerce remains unknown. However, in terms of competition, based on the prospectus, BHG Retail REIT will have a NAV that is at a 3% discount to its issue price of S$0.80. This means that investors seem to have a small margin of safety. By comparison, CapitaLand Retail China Trust has a NAV of S$1.68 as at end September 2015; this means that investors have a decent 12.5% margin of safety over the NAV (at the price of S$1.47). Hence, most investor might invest on CapitaLand Retail China Trust to ride on China increasing Consumerism given that CapitaLand Retail China Trust is more established. (With a portfolio of 10 income-producing shopping malls)
COMPILED BY: Lin Xing
DISCLAMER: Readers should not rely solely on information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.
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