We also had the opportunity to visit CMA's recently acquired Guangzhou site and saw the neighbouring malls within the vicinity to get a better understanding of the location.
■ Key highlights from the trip
(1) China property sales have improved YoY with ASPs up 10-20% this year. This partly offsets the slight 5-10% uptick in construction cost due to labour, preserving margins. Meanwhile, only 100 units are completed and unsold (of CAPL's > 65,000 unit-pipeline). The completion of 1,800 units in 4Q13 is on schedule, which means profit recognition will be backloaded
(2) Raffles City projects should see strata sales of certain office blocks (Shenzhen and Changning) to allow some returns to stakeholders in the near term, but management is mindful to retain control of the asset to preserve RC branding
(3) Ascott should benefit from operating leverage as more of its pipeline assets become operational (56% of total China units operational now)
(4) Managements will be focusing on building on scalability (benefit from economies of scale) and target more integrated projects (where they have an advantage).
■ Attractive risk reward
CMA and CAPL are our preferred developer picks due to their increasing earnings momentum led by higher contribution from new openings/completions (malls for CMA also residential completions for CAPL), layered on top of their recurring income streams from management fees and rental income.
CMA trades at 1.13x P/B or 29.5% discount to S$2.86 RNAV CAPL trades at 0.8x P/B or 43.5% discount to S$5.32 RNAV. (Read Report)
Maintain OUTPERFORM: CMA and CAPL are our preferred developer picks
Credit Suisse
CapitaMalls Asia (CMAL.SI, OUTPERFORM, TP S$2.58)
We continue to like CMA as we expect its earnings momentum to improve in the coming quarters, driven by increased profit contribution from new openings and rent reversions at existing malls (underpinned by healthy tenant sales growth) in its China and Singapore markets, which collectively make up 85% of total assets. The stock trades at 1.13x P/B, or at a 29.5% discount to
CapitaLand (CATL.SI, OUTPERFORM, TP S$4.53)
We expect CAPL's earnings momentum to improve in the coming quarters (driven by CMA, better profit recognition from Singapore and China). At 0.80x P/B, the stock trades at a 43.5% discount to RNAV of S$5.32 (target price of S$4.53 based on a 15% discount to RNAV).
