Price (30 Oct 13) S$2.04
Target price S$2.58
3Q13 Results In Line; Bedok Mall and Westgate to Start Contributing from 4Q
9M13 Operating PATMI S$185m, up 35.8% yoy (70% of Citi’s full-yr est) – Excluding portfolio gain of S$20.3m and revaluation gain of S$178m, operating PATMI for 9M13 increased by 35.8% to S$185.3m. For 3Q13, operating PATMI of S$65.1m was +4.4% YoY (+21% QoQ) due to i) more profit recognition for Bedok Residences and ii) full quarter contribution of The Star Vista (opened in Sep 12), partially offset by higher corporate costs and taxes. Its balance sheet remained healthy with net gearing at 21% (Jun-13: 24%) and a cash position of S$1,155m (Jun-13: S$817m).
China: Slowdown of tenant sales growth but still manageable – China remained the key growth driver with same-mall NPI growth (on a 100% basis) of 12%YoY in 9M13 (vs 18.4% in 9M12), due to growth in i) tenant sales (+9.8% YoY; Tier 2/3 cities +11% YoY) and 2) shopper traffic (+1.5%, slightly up from 0.8% in 1H13). In 3Q13, CMA opened the second phase of CapitaMall Jinniu in Chengdu (>90% occupancy, c.7% NPI yield expected after first year). Occupancy of CRCT’s recently acquired Grand Canyon Mall in Beijing rose to 95.5% (from 92.7% before acquisition) with strong positive rental reversion. The moderation of overall operational statistics is aligned with our expectation on tougher retail environment overshadowed by economic slowdown in China. That said, we continue to like CMA’s positioning in China given i) its mid-high end mall positioning, associated with convenience/lifestyle experience and ii) diversification from scalable portfolio.
Singapore: Bedok Mall and Westgate to open in 4Q13 – 9M13 same-store NPI growth in Singapore picked up some positive momentum with 3.8% YoY growth (1H13: +2% YoY) even though operational metrics showed signs of slight moderation, with 9M13 shopper traffic and tenants’ sales +3.6% YoY and +3.2% YoY (1H13: +4.2% YoY and +3.5% YoY respectively), in line with the trend over at CMT. Bedok Mall and Westgate are on track to open in 4Q13, with pre-commitment for Bedok Mall close to 100% (a couple of kiosks remaining; 1H13: >90%) and Westgate at 85% (1H13: >75%). Mgmt guided that it may not pre-lease Westgate to 100% pre-opening, to give it more flexibility to adjust asking rents post-opening.
Highlights from other geographies – Malaysia’s shopper traffic continued to dip (9M13: -2.9% YoY; 1H13: -2.5% YoY) and CMMT also announced yesterday that it has decided not to proceed further with the proposed acquisition of Tropicana Mall. In India, construction delays (arising from labour shortages) has led CMA to delay the opening of its Mysore Mall (near Bangalore) from 2014 to 2015 instead.
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: 30/10/13