Share price: SGD1.895
Target price: SGD2.60 (from SGD2.56)
Entrenching Its Presence
Building up scale. CapitaMalls Asia (CMA) is focused on building up scale in regions where it already has a presence. Already the de facto market leader in Singapore, it recently added another two malls, namely, Westgate and Bedok Mall. In China, it seeks to concentrate on five key clusters to deepen its presence. We remain positive on CMA’s stable of malls, which largely caters to necessity shopping. We raise our TP slightly to SGD2.60, still pegged to a 10% discount to RNAV, as we tweak our assumptions following our visit to China. Reiterate BUY.
Singapore’s two new malls to boost FY14 growth. With both Westgate and Bedok Mall opened in early Dec 2013 to high occupancy rates (Westgate: >85%, Bedok Mall: 100%), we believe they will contribute significantly to CMA’s FY14 earnings growth. The successful opening of the malls is testament to CMA’s deep tenant network and underlines the retailers’ confidence in setting up shop in the new malls.
China continues to deliver. Following its latest acquisition in Guangzhou, CMA will have 62 malls in China, of which 52 are already in operation. The company’s existing malls continue to deliver healthy sales growth for its tenants and its portfolio is operating at a high average occupancy rate of 97.2%. CMA will focus to grow scale in key clusters like Beijing, Shanghai, Chongqing, Chengdu and Wuhan, and we expect it will also continue to reap benefits from its network effect.
Differentiation is key. Be it in Singapore or China, we believe retail landlords have to constantly stay ahead of the curve to ensure that their malls remain differentiated from their competitors. In our view, CMA has so far done well in this aspect, but it cannot afford to rest on its laurels. Indeed, finding the right mix of tenants and knowing how to make the shopping experience more enjoyable is more art than science.
Top sector pick. CMA is our top pick within the Singapore property space. With a visible pipeline of mall openings, operating income will grow from strength to strength, further supported by positive rental reversions. The stock currently trades at 0.68x P/RNAV, which is very attractive, in our view.
Publish date: 17/12/13