Don’t tell anybody, Santa Claus dropped by town last week, descending from his anachronistic transport onto Robinson Point, headquarters of CapitaMalls Asia (CapitaMalls).

Priced at $2.12 apiece or 1.55x P/BV, the initial public offering (IPO) of CapitaMalls attracted a great deal of pent-up demand from retail and institutional investors alike. According to CapitaLand President and Chief Executive Liew Mun Leong, demand for the IPO was robust with US and European institutional investors clamouring for a slice of the pie.

Assuming the over-allotment option is not exercised, net proceeds from the offering is expected to be $2.4b, making it Singapore’s largest IPO since the listing of SingTel. As at press time, the public tranche of the IPO was subscribed nearly 5 times.

The pure-play shopping mall company, one of the largest in Asia, will have a total of 59 completed retail properties in 2009 and 86 retail properties by the end of 2012, estimated to be worth $20.3b.

The principal strategy for CapitaMalls is to invest and manage a portfolio of real estate assets used for retail purpose in Asia. Operations are carried out through 2 segments, the property business whereby the company invests in properties through direct ownership, REITs, joint-ventures and private real estate funds and the management segment consisting of fund and mall management.

Upon listing, CapitaLand will retain 65.5% to 70% of CapitaMalls, allowing the latter to access the former’s expertise as well as wide business network.

String Of Pearls
Spanning 48 cities in the countries of Singapore, Malaysia, China, Japan and India, CapitaMalls’ portfolio is diverse geographically and holds immense potential for development.

Insofar, Singapore with relatively low average retail space per capita (compared to developed economies) is expected to be the anchor market of the company. In time to come, however, top line growth will be fueled by the China and India card.

Initially, CapitaMalls will focus on the Middle Kingdom, accelerating development of malls and actively seeking out opportunities for expansion. By December 2009, CapitaMalls will have 32 properties in China as compared to 16 in Singapore. In the year 2012, 58% of the company’s property will be in China.

Such aggressive expansion could easily heighten risk for the company. China’s Rmb4 trillion stimulus package has lifted the economic performance of the country and there are valid concerns of a future downturn following the unwinding of the package. In such a scenario, the bursting of the bubble could drag earnings and in turn dividend payouts. FY08 dividend was $0.107 a share.

Investors looking for a safe income play could park their money in CapitaMall Trust or other Singapore-centric REITs such as Suntec REIT. For those seeking credible growth, then CapitaMalls is a better option.

Growing From Strength To Strength
During the 3 years, FY06 to FY08, CapitaMalls’ top line grew at a CAGR of 44.6%. Nonetheless, FY08’s bottom line was hit by a 48% increase in finance costs, owing to the impact of additional borrowings from CapitaLand in 4Q07 and 2Q08 for financing investment in CapitaRetail China Trust and the China Incubator Fund among other funds.

On an EBIT basis, Singapore accounted for the lion share (53.3%) followed by China (28%). For reasons discussed above, China is expected to be the main revenue driver in the future.

9M09 was another bumper period for CapitaMalls. Turnover rose marginally 5.1% to $206.3m as compared to $196.3m in the corresponding period. But the bottom line surged to $244.5m boosted by a 112% increase in contributions from associates and jointly-controlled entities.

Undoubtedly, the floatation of CapitaMalls is a much-needed boost for the local equity market in a year where notable listing is a rarity. Investors are advised to examine their portfolio and risk-return profile to assess the suitability of taking a stake in the company.