CapitaMalls Asia

OCBC on 27 Jul 2012

CMA announced 2Q12 PATMI of S$232.0m - up 40.7% YoY mostly due to a S$64.6m divestment gain (net-tax), offset partially by lower revaluation gains. Accounting for one-time items, we estimate 2Q12 core PATMI at S$39.0m which is somewhat below view due to a slower than expected rental income ramp-up in China. Management also declared an interim dividend of 1.625 S-cents, and a formal dividend policy to pay out at least 20% of annual PATMI. 1H12 shopper traffic and tenant sales (psf) in CMA’s Chinese malls were up 10.7% and 11.6% YoY respectively, underscoring still healthy retail conditions. We pare our FY12 core PATMI estimate, however, by 16% to account for softer income growth from China. Despite this, our fair value estimate rises to S$1.85 (10% RNAV discount) versus S$1.79 previously, mostly due to stronger valuations for listed holdings. We believe CMA’s valuation appears undemanding at this juncture. Maintain BUY.

Rental ramp-up at Chinese malls slower than expected
CMA announced 2Q12 PATMI of S$232.0m, which was 40.7% higher YoY mostly due to a S$64.6m divestment gain (net-tax) from injecting CapitaMall Tianfu and CapitaMall Meilicheng into CapitaMalls China Development Fund III, offset partially by a lower revaluation gain of investment properties over the quarter. Accounting for one-time items, we estimate 2Q12 core PATMI at S$39.0m which is somewhat below view due to a slower than expected rental income ramp-up in China. 2Q12 topline came in at S$74.6m – up 18.7% YoY mostly due to the acquisition of three Japanese malls in Feb 12 and higher revenue from the management fee business. Management also declared an interim dividend of 1.625 S-cents, and a formal dividend policy to pay out at least 20% of annual PATMI.

Retail conditions in China still healthy
1H12 shopper traffic and tenant sales (psf) in CMA’s Chinese malls remained healthy and were up 10.7% and 11.6% YoY, respectively. Excluding Tier 1 cities, tenant sales were up an even stronger 15.9%. In addition, 1H12 same-mall NPI in China was up 18.3% YoY, underscoring still healthy retail conditions. In Singapore, we saw 1H12 shopper traffic come down 0.8% YoY due to construction works and competitive pressures at several malls, though tenant sales still increased a respectable 2.1%. Looking ahead, we expect six more new malls opening in China and Star Vista in Singapore to open by Sep12. We understand that Star Vista is currently ~83% leased, and management is looking to hold out for better rates for the remaining space as the mall gains traction after opening.

FV rises to S$1.85 due to valuation of listed holdings
We pare our FY12 core PATMI estimate by 16% to S$161.7m as we incorporate into our model a softer rental income ramp-up in China. Our fair value estimate, however, rises to S$1.85 (10% RNAV discount) versus S$1.79 previously, mostly due to stronger valuations for listed holdings. We believe CMA’s valuation appears undemanding at this juncture. Maintain BUY.