Written By Stock Fanatic on Friday, November 29, 2013

 

■ We visited CAPL's projects in Shanghai, Guangzhou and Shenzhen?a total of 8 projects?with the trip ending with a presentation by key business heads. We saw a good mix of completed and under-development sites, including the upcoming RC Changning and RC Shenzhen, as well as the mixed developments at Datansha Island (CAPL's first urban renewal project) and Hanzhong Lu. 

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).

Technical Analysis

Daily Chart

What You Should Do

We maintain an Outperform stance as more of its retail malls will mature in FY14-15. (Read Report)

 

Building an edge in China

Our recent ground checks onCMA?s retail malls in China reinforceour view that asset management remains its edge over local developers. Asset build is on track, footfalls are encouragingand more malls are maturing. Weexpect its operational metrics to improve in FY14-15.

 



We tweak our FY13-15 core EPS by 1-2% and nudge upour target price (still based on 10% discount to RNAV) for slightly higher rental estimates after our China trip. We reiterate our Outperform rating, with rental yield improvements and potential asset recyclingbeing the catalysts.



 

 

 

What Happened



 

 

We toured some of CMA?sprojects in Shanghai and Guangzhou, and also interacted with senior management and ground staff last week.



What We Think

 



  We noticed distinct improvements in retail footfalls at CMA?s Raffles City (RC) Shanghai and Hongkou Plaza sinceour last visit in 2012. This asset, which was acquired at c.4.5% yield on cost in 2011, will beentering its first renewal cycle in 2014. Like its other more mature malls in its portfolio, CMA is confident of getting 15-20% rental reversionson the back of c.6-7% retail sales growth per year. We think this is achievable. We alsovisited its latest brownfield development in Guangzhou (Baiyun) and believe that this mall can achieve or even beat CMA?s growth targets



 

 

 



come lease renewal season in 2017-18. A solid location (only mall in the area connected to a train station) and lack of comparable malls in the vicinityare the positives.We retain our view that CMA?s retail malls located in tier-1 citiesin China are well managed and well positioned for rental growth. However, Tier-2 malls,while seeing better footfalls, havenot yet reached the level seen in tier-1 cities. Overall, we believe the demand landscape for mid-tier malls and product offeringsin China arestronger than the luxury segment as price points are more in sync with the reported median income. This, in our view, is CMA?s strong suit. Our walkabout in Shanghai?s more upscalemalls on a Sat afternoon indicatedlow footfall.

 



Our conversation with CMA?s CEO, Mr Lim Beng Chee, suggests a strong FY14-15to come, underpinned by asset completions and rental reversions asthe2011 and 2012 batch of retail malls enter theirfirst lease renewal cycle.



 

 

 

What You Should Do



 

 

We maintain an Outperform stance as more of its retail malls will mature in FY14-15.



  https://brokingrfs.cimb.com/n1kKVZ0CfIEegq7eyTFfkaqAD1xiaQaT1DjOYHWLH_YAILlosHOLX0N4mEsmhaofAS6ICQ_cbm41.pdf

 

 

Written By Stock Fanatic on Thursday, November 21, 2013

CMA?s latest acquisition in Guangzhou is its first but is unlikely to be its last. The pricing looks reasonable for a site in a tier-1 city and leaves scope for yield enhancements after one leasing cycle. Earnings downtime is also reduced by partial completion slated for end-2014.

We are overall positive on this deal though the immediate impact on RNAV is expected to be muted. We lift our target price (still based on a 10% discount to RNAV) and adjust our FY13-15 core EPS by +2%/-3% for this acquisition. We reiterate our Outperform rating, with rental yield improvements and potential asset recycling being the catalysts.

What Happened

CMA announced that it will acquire in full a shopping mall at Baiyun Greenland Centre in Guangzhou, China. The vendor is Greenland Real Estate, a subsidiary of the Greenland Group. The total cost is expected to be RM2.64bn or S$534.1m on a completed basis. This works out to c.Rmb30k psm GFA or Rmb47k psm NLA. This is CMA?s first foray into Guangzhou though it owns five retail malls in the greater Guangdong area.

What We Think

Construction of this mall is at the final stages and the mail is expected to open in late 2014. Acquisition at this stage will allow CMA to reduce earnings downtime and lower pre-opening losses. Pricing-wise, the deal looks fine. Strata-titled retail units in the area have been sold at c.15% higher or Rmb35k psm GFA. We believe Chinese developers will continue to divest commercial properties to free up tied-up capital, presenting more opportunities for purer retail operators like CMA.

Management indicated that comparable malls in the location are fetching gross rents of c.Rmb250-300 psm. CMA?s latest mall is strategically located, being connected to the Baiyun Park subway station. We think rents could be slightly higher than market. Assuming a gross rent of Rmb300psm, we estimate an initial yield of 4.9%, in line with its previous acquisitions. We expect its NPI yield to rise to c.6% after one rental cycle (typically three years). 

CMA?s track record in lifting yields has been good. Net gearing is expected to rise to c.60% in FY14 (look-through), manageable in our view, with more assets set to complete and Grand Canyon mall to be divested.

Intra Day
	Gadgets powered by Google

Technical Analysis

Daily Chart

What You Should Do

We maintain an Outperform as more of its retail malls will mature in FY14-15. (Read Report)

Read Related Report

CapitaMalls Asia - First Acquisition in Guangzhou
Wednesday, 20 November 2013

- Maybank Kim Eng Research

 

CapitaMalls Asia - Initiation: building up its core

Written By Stock Fanatic on Tuesday, November 19, 2013 | 19.11.13

? A blue-chip pure play on necessity shopping and structural growth of Asia?s middle-income consumer group

? We expect CMA?s earnings quality and visibility to improve as it shifts its focus to nurturing its recurring income base

? Maturing of malls opened in recent years should drive a 30.9% core earnings CAGR for 2013-15E initiating with a Buy

■ Investment case

CapitaMalls Asia (CMA) is a blue-chip developer and operator of shopping malls in five Asian countries. It offers exposure to necessity spending and Asia?s middle-income consumer group ? segments that we believe will offer resilience and continue to see good structural growth for the next few years. We project strong core earnings growth for CMA for 2013-15 and see good valuation rerating potential. We thus initiate coverage with a Buy (1) rating.

CMA has an integrated shopping-mall business model spanning site location, development, leasing, operation and management of malls. The company is shifting its focus from developing projects towards nurturing its recurring income base, which we expect to improve its earnings quality and visibility in the next few years. We forecast a 30.9% core earnings CAGR for 2013-15, driven by its malls opened in recent years starting to mature and likely seeing positive rental reversions. We believe CMA?s overall portfolio has been conservatively appraised by independent valuers and should continue to experience positive revaluations.

■ Catalysts

We identify key share-price catalysts as continuous yield improvements at CMA?s China malls, successful openings of its two new malls in Singapore, and a sustained recovery in shopper traffic and tenant sales. Positive news flow on Asia retail sales would also support its share price. Further, in August 2013 CMA announced plans to collaborate with the Changi Airport Group to develop Project Jewel, a mixed-use complex at Changi airport. We think this would be positive for CMA if it can negotiate a sizeable equity stake in the project.

Intra Day
	Gadgets powered by Google

Technical Analysis

Daily Chart

■ Valuation

Our six-month target price is SGD2.39, based on a 1.32x PBR (1SD above CMA?s six-month forward PBR since listing) applied to our six-month forward BVPS, and implies a 1.8% discount to our 2014E RNAV. CMA is trading at a PBR of 1.13x (based on its reported BVPS of SGD1.79 at end- 3Q13), just above its average rolling PBR since listing of 1.11x. We see good scope for a continuous rerating given our outlook for growth in its operating asset base and robust core earnings.

■ Risks

Key risks include an oversupply of malls, increasing competition, a slower-than-expected ramp-up of its China malls, and falling mall valuations if capitalisation rates rise. (Read Report)

CapitaMalls Asia - Gradual growth on track

Written By Stock Fanatic on Wednesday, October 30, 2013

3Q same-mall NPI grew a respectable 12% yoy and tenant sales in China, 9.8%, alleviating fears of a consumption weakness. Tenant sales in Singapore were stable, while pre-leasing also inched up. Operational improvements were on track.

3Q13 core EPS was in line, at 23% of our FY13 estimate (9M13 at 76%). Although we lower our FY13-15 core EPS for higher costs, we lift our target price after rolling forward our asset-based valuation. Our target remains based on a 10% discount to RNAV. Maintain Outperform with catalysts expected from further operational improvements.

The positives

3Q13 operations continued to improve. In China, shopper traffic and tenant sales were up 1.5% and 9.8% (on a psm basis) yoy respectively, backing a 12% yoy increase in same-mall NPI. CMA also continued to lift yields from its operational malls, with yield on cost for malls opened before 2012 up 6-24% yoy. Portfolio yield on cost stayed in the 12% range and is expected to improve further, assuming no new acquisitions. 

In 3Q13, CMA opened CapitaMall Jinniu in Chengdu, China with an occupancy rate of over 90%. In Singapore, shopper traffic and tenant sales growth was stable at 3.2-3.6% yoy. Bedok Mall is now 100% preleased with Westgate at 85% (75% in 2Q13).  Both are expected to open in 4Q13.

The (slight) negatives

Lower management fees due to the opening of fewer malls led to a 10% yoy decline in 3Q13 revenue, while high admin expenses affected its bottom line (flat yoy). Operating costs should normalise gradually as China malls mature. China?s tenant sales growth, while up, has moderated from last year?s levels. We expect this trend to persist, though still expecting healthy 8-10% growth in FY14-15.

Intra Day
	Gadgets powered by Google

Technical Analysis

Daily Chart

Drivers

We expect new malls in Singapore and higher property yields in China to power its earnings in the next 12-15 months. CMA expects CapitaMall Jinniu to generate a c.7% NPI yield after its first year, which would be a stark improvement to the 4-5% achieved for new malls in 2011-12. (Read Report)

NEWS RELEASE

CapitaMalls Asia achieves 3Q 2013 PATMI of S$64.8 million (HK$400.1 million)

Year-to-date 2013 operating PATMI increases 35.8%  to S$185.3 million (HK$1,143.8 million)

Singapore and Hong Kong, 30 October 2013

? CapitaMalls Asia Limited (SGX: JS8 and HKEx: 6813) announced today that it achieved profit after tax and minority interests (PATMI) of S$64.8 million (HK$400.1 million1) for 3Q 2013, an increase of 4.0% over the S$62.4 million (HK$384.8 million) for 3Q 2012. Operating PATMI for 3Q 2013 was S$65.1 million (HK$401.9 million), a 4.4% increase over the S$62.4 million for 3Q 2012.