CapitaMalls Asia -
No emerging stress on yields
Concerns over a slowdown in China have hurt CMA's share price of late. We think this is overdone given CMA's latest 4Q13 results. Tenant sales growth remains robust, suggesting that rental reversions could positively surprise in 2014. The new malls completed in Singapore are also expected to drive earnings this year. CMA's 4Q13 core EPS was broadly in line at 21% of our full-year estimate (FY13 at 96%) and consensus. We tweak our FY14-15 core EPS model by +1/-5% and trim our target price by raising the discount to its RNAV from 10% to 15% to reflect a more cautious macro outlook in China. We maintain Add, with stronger retail rents in China as potential catalysts.
China yields firm; new malls in Singapore meet target
Same-mall NPI in China rose by 13% yoy in 4Q13, with yield on cost for malls opened in 2005-2011 up 5-18% yoy in 4Q13. This is becoming a recurring trend. The average portfolio yield on cost remained firm at 7.1%, though first-year yields new retail malls remain sub-optimal at 4.5-5%. In Singapore, same-mall NPI improved sequentially, up 4.5% yoy due to the completion of AEIs. CMA guides that the achieved rent for Westgate mall (90% occupancy) is in the mid-teens psf, and the Bedok mall (full occupancy) is in the high-teens psf. This is on track to meet its targeted yield on cost of 5.5-6% and 6%, respectively.
Expect some pricing power in 2014
Despite concerns over a China slowdown, it still managed to deliver 10.1% yoy growth in tenant sales for 4Q13. CMA guides that the retail sales momentum remains good YTD. We believe that its positioning as a mass- to mid-tier retail mall operator makes it a little more defensive against a potential decline in domestic consumption. More of its portfolio will enter its second leasing cycle in 2014, particularly the malls built in 2010-2011. With tenant sales rising by 50-60% over the last 3-4 years, we believe that it could now be in a position to renew leases at rents that are 20-25% higher than initially achieved.
Road map for 2014
CMA believes that its balance sheet is nearly fully utilised and is in no hurry to acquire new sites. Execution in driving yields seems to be the focus for 2014. The results are starting to show as its operational income gradually forms a higher portion of PATMI. 4Q13 revaluation gains were driven by higher rents.
Publish date: 14/02/14