Price (23 Jul 13) S$1.94
Target price S$2.58
Alert: 1H13 Result In Line; Resilient amid China Macro Headwind
1H Operating PATMI S$120m, up 62% yoy (45% of Citi’s full-yr est) – Excluding portfolio gain of S$21m and revaluation gain of S$178m, operating PATMI for 1H increased by 62% to S$120m on the back of a 27% increase in revenue. For 2Q13, operating PATMI of S$54m was +41% YoY but -27% QoQ, with the sequential decline attributed to seasonal and other factors (like tax provision and wage adjustments).
In 2Q13, CMA commenced profit recognition for Bedok Residences (S$12m); as such, we consider 1H13 PATMI to be in line as we expect a more back-end loaded FY13. Among the different geographies, China remained the key growth driver with same-mall NPI growth (on a 100% basis) of 12.1% in 1H13 (vs 18.3% in 1H12), underscoring the relative resilience of the Chinese consumption story in spite of the macro headwinds, as well as improved yields from stabilizing assets in China (with YoY yield improvement ranging from 7% to 24%). Its balance sheet remained healthy with net gearing at 24% (end-FY12: 30%) and a cash position of S$817m (end-FY12: S$599m). NTA per share rose 6.6% YoY to S$1.78.
China: Delivering tenant sales growth amid slowdown – NPI for its China malls on a small-mall basis rose 12.1% YoY in 1H13, due to growth in i) tenant sales (+9.5% YoY; Tier 2/3 cities +11% YoY) and 2) shopper traffic (+0.8%, attributed to the “KFC effect” as part of avian flu concerns). Most 1H operational statistics showed moderation from previous period, aligned with our expectation on tougher retail environment overshadowed by economic slowdown in China. Notably, while CMA opened CapitaMall Meilicheng in Chengdu in 2Q13 (>95% occupancy, c.5% NPI yield after first year), it announced the delay in opening of its Tianfu mall in Chengdu till 3Q14 to allow chain retailers to pace their expansion with the company.
That said, we continue to like CMA’s positioning in China given i) its mid-high end mall positioning, associated with convenience and lifestyle experience (high-end malls like Hang Lung’s are harder hit) and ii) diversification from scalable portfolio. With China’s blurry economic outlook, CMA is differentiated among all China retail plays by its resilience and counter-cycle growth, in our view.
Singapore: Cap rate compression, improving pre-commitments – 1H13 samestore NPI growth in Singapore remained stable (+2% YoY). Portfolio gains were driven by cap rate compression of 20-30bps, with ION now valued at S$4,748psf at 5% cap rate (end-FY12: S$4,565psf) and Star Vista at S$2,078psf at 5.75% cap rate (end-FY12: S$2,047psf). Westgate’s pre-commitment has improved to >75% (1Q: >50%) while Bedok Mall’s is at >90% (1Q: >70%). Both remain on track to open in 4Q13 with targeted rentals of S$15-16psf and S$18-19psf respectively.
Most preferred regional retail developer/operator – We continue to like CMA as we feel it is poised to harvest multi-year gains from sustained investment in the China consumer growth story, with earnings anchored by recurring income in SG.
Our target price for CMA of S$2.58 is based on a 10% discount to our RNAV estimate of S$2.87/sh. The RNAV is derived by using standard methodologies to value properties that are i) directly held; ii) held by publicly listed REITs; and iii) held by private investment funds, to which we add other asset/liabilities that comprise the book value. The 10% discount partially reflects the 30% discount that we apply to the company's China exposure (~30% of RNAV) given concerns about the mainland's growth in the near term. As CMA has a relatively short listing history, we are not able to use historical data on trading discount to RNAV to benchmark the appropriate discount to RNAV.
Key downside risks that could mean the CMA shares fail to meet our target price include: 1) Over-expansion via new acquisitions; 2) Severe competition in China malls; 3) A slowdown in consumer spending; 4) A slower pace of expansion by retailers, especially in China; and 5) Unfavorable currency movements, e.g., JPY and RMB.
Publish date: 25/07/13