Chinese Mall Sales Growth Slowed in June, Morgan Stanley Reports

Leading mall operators in China reported a slowdown in growth for June, with same-store sales, excluding automobiles, registering flat to low single-digit increases, according to a research note from Morgan Stanley. The investment bank attributed the deceleration from May's performance to a high comparison base from the prior year, unfavorable weather, and the seasonal timing of promotions.

Broader Retail Metrics Improve

Despite the softness in mall-specific traffic, some broader retail indicators showed signs of recovery in June. Morgan Stanley noted that total retail sales grew 1% during the month, a reversal from the 0.6% decline observed in May. When adjusted across categories, offline retail sales excluding autos accelerated to 2.6% growth, up from 0.5% in the previous month.

Several consumer categories showed notable improvement:

• Food & beverage, cosmetics, and mobile devices returned to positive growth.
• Gold and jewelry and electronics and home appliances posted narrower year-over-year declines.
• Restaurant sales growth picked up to 1.2% year-over-year, compared to 0.6% in May.

Operator Performance Varies

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Performance among major mall landlords was mixed. CR Land reported rental growth of 11% in June, a slight moderation from 12% in May, bringing its first-half growth to 13% year-over-year. The company's same-store sales growth was positive excluding auto sales but turned slightly negative when they were included.

Longfor posted a 15% increase in rental income for June, a significant jump from 4% in May, which the bank said was partly due to a low base effect. Its same-store sales growth, excluding autos, was in the low single digits, a sharp drop from over 10% in May. Meanwhile, Seazen recorded a modest 0.3% rise in rentals for June, with first-half growth at 2%.

Analyst Outlook

In its analysis, Morgan Stanley reiterated its Overweight rating on CR Mixc, a major commercial property operator. The bank highlighted the company's ability to consolidate market share and its attractive dividend yield, which stands at approximately 5%, as key reasons for its positive stance.