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Breakdown: CapitaMalls Asia 1Q13 Results Continues Where It Left Off In 2012
Breakdown, Tradeable | 30 April 2013
By: Nicholas Tan
Articles (71) Profile

The best performer on the Singapore Stock Exchange last year, CapitaMalls Asia (CMA) had just released its 1Q13 results on 24 April 2013. Surprising many, it was somewhat above consensus expectations. With this exceptional performance for 1Q13, will the momentum continue for the rest of FY13? This could lead to CMA’s stock price continuing on its ascent and possibly touch its all-time high of $2.69. According to analysts featured in this breakdown article, it seems probable that this could happen soon.

CMA’s topline came in at $91.5 million, up 29.1 percent year-on-year due to contributions from The Star Vista and four malls in Japan as well as higher fee revenue from new malls and improved performances. Similarly, bottomline was up 9.6 percent year-on-year, at $73.2 million mostly due to contributions from the above-mentioned malls, along with Queensbay Mall’s contribution, a $6.6 million gain from warehousing of two assets sold to CapitaMalls China Development Fund III, better performance from CapitaMall Trust, ION Orchard and the China Funds, and a sale at The Orchard Residences. Excluding the one-time revaluation gain in 1Q12, CMA’s net profit for 1Q13 would have been 102.8 percent higher.

Sifting through various research reports on CMA, perhaps the most compelling thought on analysts’ mind leading to their bullish calls is CMA’s strong long-term fundamentals. They opine that CMA currently holds a market leader position with an extensive network of retail malls in a growth region catering to an expanding middle-income population group. Furthermore, CMA is backed by a strong parentage and is led by an experienced management team in the property development business.

Eli Lee and Kevin Tan of OCBC Investment Research note that CMA’s Singapore portfolio is showing stable growth momentum. Same mall Net Property Income increased 1.3 percent year-on-year, while tenant sales per square metre and shopper traffic increased 3.6 percent and 3.7 percent respectively.

“We favor CMA for its sharp execution and retail property exposure in China and Singapore which continue to enjoy firm long-term fundamentals.”

They also pointed out that Singapore malls in the pipeline – Westgate (more than 50 percent committed) and Bedok Mall (more than 70 percent committed), remain on track for completion in 4Q13. This is likely to add accretive revenue to CMA from FY14 onwards and support a sustainable growth path going forward.

Eli and Kevin’s Call: BUY, with a target price of $2.55 (potential upside of 20.3 percent*)

Showing the same positive feel for CMA was Macquarie Research which saw the benefits of scale, with an extensive retail network to drive core earnings growth. According to CMA’s management, it expects core earnings growth of between 30 to 40 percent from full year contribution of The Star Vista and Bedok Residences in Singapore, and contributions from seven new China malls that were opened in 2012.

“CMA is a great play on Asian retail and consumption. With 60 percent of assets in emerging markets, it could also attract global emerging market funds. Its extensive retail network provides good clarity on occupancy cost trends across various sector trades, which enables the group to renew leases at higher rents, as long as tenant sales are rising.”

The report also mentioned that the group will try to have an 80/20 asset split between completed properties and properties under construction to help drive sustainable return on equity. Asset recycling to its listed-REITs will happen only if it makes financial sense, and it favors third-party acquisitions by its listed REITs which will better help extend its extensive leasing network as well as fee income.

Macquarie Research’s Rating: Outperform, with a target price of $2.43 (potential upside of 14.6 percent*)

Reiterating the strong positive vibe for CMA was Wilson Liew of Maybank Kim Eng, where the brokerage house chose it as their top pick amongst Singapore developers for its growth potential, market leadership position and track record. Rumours were circling that CMA is purportedly looking to acquire a commercial property from Anhui’s top developer, Landing Group. If true, this will mark CMA’s first foray into Hefei, the capital city of Anhui province, a fast growing city which lies between Shanghai and Wuhan.

“Pending confirmation and details of any acquisition, we believe that having a presence in Hefei would be positive for CMA.”

Wilson’s Call: BUY, with a target price of $2.57 (potential upside of 21.2 percent*)

While it seems that CMA’s venture in China is not ebbing with a total of 11 retail malls targeted to be opened soon, the retail mall developer has turned to become more cautious in its approach in China. This comes amidst strong competition in the China retail mall market and a relatively slower Chinese economy, which is has a 7.5 percent growth target for 2013.

*Based on CMA’s closing price of $2.12 on 29 April 2013

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Well trained in aspects of finance and business, Nicholas oversees the finance and manufacturing sectors at Shares Investment.

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