CapitaMalls Asia

Kim Eng on 27 Jul 2012

China earnings coming through. CMA reported a 2Q12 headline PATMI growth of 41% YoY to SGD232m, partly lifted by revaluation gains. 1H12 PATMI excluding revaluation gains came in at SGD162.7m, largely within expectations. Property income from China has picked up as expected, due to contributions from Minhang and Hongkou malls. We remain positive on CMA’s positioning and prospects. Maintain BUY.

Mall operations continue to grow steadily. Property income of SGD117m accounted for 29% of CMA’s 1H12 EBIT – a 46% improvement from the same period last year. That was underpinned by steady same-mall NPI growth particularly in China (up 18.3% YoY). Tenant sales have also continued to improve in 1H12, especially those in China where sales grew by 11.6% YoY. Tenant sales outside of Tier 1 cities have in fact grown by an even stronger 15.9% YoY.

Upside potential from Singapore. The Star Vista, expected to open in mid-Sep 2012, is already more than 80% committed. Based on our own estimates, the asset could contribute ~SGD11m per annum in NPI. In addition, a substantial amount of leases at ION Orchard expire this year, and we expect some uplift from positive rental reversions, as well as improvement in tenant mix in some areas of the mall.

Setting a dividend policy. The Board has approved a dividend policy, whereby ordinary dividends of >20% of the annual PATMI (incl. revaluation gains) will be paid. Additional dividends may be declared in the event of exceptional gains from monetization or divestment of assets, taking into consideration outstanding capital commitments and economic outlook. We believe that this is a positive step to reward shareholders. An interim dividend of 1.625 cts/sh has been declared.

Reiterate BUY. Another six malls in China will be opened before the end of the year, and these will contribute fully to CMA’s FY13 earnings. We remain confident of CMA’s prospects and have rais ed our target price slightly to SGD2.09, pegged to a 20% discount to RNAV on the back of the recent re-rating in its REITs.