CapitaMalls Asia -
Gradual growth on track
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.
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.
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.
Publish date: 30/10/13