CapitaMalls Asia -
Target (SGD): 2.390
13 Nov price (SGD): 1.995
Building up its core
• 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.
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.
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.
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.
Publish date: 15/11/13