CapitaMalls Asia

OCBC on 15 Apr 2014

CapitaLand (CAPL) announced that will make a voluntary conditional cash offer of S$2.22 per share for all remaining CMA shares that it does not already hold. Note that CAPL currently owns 65.3% of CMA and would require another 24.7% acceptances to cross the 90% threshold for the offer to be declared unconditional. In that event, CAPL will compulsorily acquire all shares not acquired under the offer and delist CMA. The offer document will be dispatched within 14-21 days and the closing date will be around end May to June 2014. We believe that the offer price is fairly decent, given that it represents a 21% premium to book and a reasonable 8% discount to RNAV. CMA’s shares have mostly traded below its IPO price (S$2.12) since its listing in 2009, due to various structural and macro-economic headwinds, and this provides an opportunity for investors to exit at a reasonable valuation. Our recommendation: ACCEPT the offer.

Voluntary conditional cash offer of S$2.22 per share
CMA’s parent, CapitaLand (CAPL), announced that it will make a voluntary conditional cash offer of S$2.22 per share for all remaining shares that it does not already hold. Note that CAPL currently owns 65.3% of CMA and would require another 24.7% acceptances to cross the 90% threshold for the offer to be declared unconditional. In that event, CAPL has stated that it intends to compulsorily acquire all shares not acquired under the offer and delist CMA. In addition, there will be no downstream offer for CapitaMalls Trust and CapitaRetail China Trust, in which CMA holds deemed interests of 27.6% and 37.1%, respectively. The offer document will be dispatched within 14-21 days and the closing date will be around end May to June 2014.

Expected to be earnings and ROE accretive to CapitaLand
The privatization of CMA will simplify CAPL’s organizational structure and enable more flexible capital allocation across business segments, therefore enhancing its capabilities in integrated developments. This action also allows CAPL management to deploy significant capital to already well-understood assets, and accrete to earnings and ROE meaningfully – the latter is now a key strategic focus for management. On a post-transaction pro-forma basis, CAPL’s FY13 EPS would have increased from S$0.20 to S$0.24 and ROE from 5.4% to 6.7%. 

ACCEPT the offer
We believe that the offer price is fairly decent, given that it represents a 21% premium to book and a reasonable 8% discount to RNAV. CMA’s shares have mostly traded below its IPO price (S$2.12) since its listing in 2009 due to various structural and macro-economic headwinds, and this provides an opportunity for investors to exit at a reasonable valuation. The delisting will likely succeed, in our view. Alternatively, we note that CAPL reserves the right to reduce the conditional acceptance level below 90%; if that happens, residual minority shareholders of CMA may find themselves in a situation with reduced trading liquidity and a smaller float. Our recommendation: ACCEPT the offer.

Singapore Property Sector

Kim Eng on 17 Feb 2014

Slow Start To The Year
Following a very quiet December which saw developers sold a mere 259 new homes, January was only slightly better with 565 units (excluding ECs) sold, on the back of 549 units launched. Including ECs, the total number of units sold would have been 610. Of the new launches in January, the biggest contributor was The Hillford, which was marketed as a retirement resort. All 281 units of this 60-year leasehold project by Aspial were sold, achieving a median price of SGD1,105 psf. Over at Wheelock’s The Panorama in Ang Mo Kio, 58 out of the 120 units launched were sold at a median price of SGD1,343 psf. Oxley’s 90-unit Floraview in Yio Chu Kang saw dismal take-up, with just one unit sold at SGD1,396 psf.

What’s Our View
As the Total Debt Servicing Ratio (TDSR) and the cumulative effects of the various cooling measures continue to bite, we expect both developers and homebuyers to stay cautious. Launches on the horizon include the 469-unit The Crest at Prince Charles Crescent by Wing Tai and the massive 1,042-unit Marina One Residences by M+S Pte Ltd.

Our outlook for full-year new home sales to cool by 10-15% YoY to 13,000-14,000 units remains intact, together with our expectations for a 10% decline in private property prices, led by the mass market segment.

We reiterate CMA (CMA SP, BUY, TP SGD2.60) as our top sector pick for its retail mall business, underpinned by clear earnings visibility over FY14-15. CapitaLand (CAPL SP, BUY, TP SGD3.88) and Keppel Land (KPLD SP, BUY, TP SGD4.60) are still attractively priced, given their strengthening presence in China. We maintain our SELL recommendation on City Developments Limited (CIT SP, TP SGD8.30) as it remains the biggest proxy to the Singapore residential sector.

CapitaMalls Asia

OCBC on 14 Feb 2014

CapitaMalls Asia (CMA) reported 4Q13 PATMI of S$216.4m, which increased 17.1% YoY mainly due to contributions from Star Vista, four new malls in Japan and progressive recognition from Bedok Residences. Adjusting for one-time items and fair value gains, FY13 core PATMI cumulates to S$240.1m, forming 104% of our FY13 forecast and we judge this to be mostly in line. The group announced a final dividend of 1.75 S-cents per share. Overall occupancy rate for CMA’s Chinese malls increased QOQ marginally to 97.3% from 97.2%. FY13 tenant sales increased 10.1% (excluding Tier 1 cities: 11.0%) while shopper traffic increased 2.2%. Maintain BUY. Our fair value estimate falls marginally to S$2.40 from S$2.55 previously due to weaker valuations of listed holdings.

4Q13 numbers within expectations
CapitaMalls Asia (CMA) reported 4Q13 PATMI of S$216.4m, which increased 17.1% YoY mainly due to contributions from Star Vista, four new malls in Japan and progressive recognition from Bedok Residences. Adjusting for one-time items and fair value gains, FY13 core PATMI cumulates to S$246.3m, forming 106% of our FY13 forecast and we judge this to be mostly in line. In terms of the topline, 4Q13 revenues came in at S$103.7m, down 8.7% YoY mainly due to lower leasing commission and project management fees from China. The group announced a final dividend of 1.75 S-cents per share.

Chinese mall data still healthy
Overall occupancy rate for CMA’s Chinese malls increased QOQ marginally to 97.3% from 97.2%. FY13 tenant sales increased 10.1% (excluding Tier 1 cities: 11.0%) while shopper traffic increased 2.2%. From an NPI yield on cost perspective, there were broad-based improvements across mall vintages in the range of 4.8%% to 18.4%. The group opened two malls in Chengdu over FY13: CapitaMall Meilicheng in Apr-13 and CapitaMall Jinniu (Phase 2) in Sep-13. Both are 98% and 93% committed and have achieved ~5% and ~7% yields, respectively. 

Two new malls opened in Singapore
In Singapore, overall committed occupancy rate remained firm at 99.3% as at end Dec 13. FY13 tenant sales were up 3.2% while shopper traffic increased 2.4%. Over the year, CMA opened Westgate, Bedok Mall and also announced a 49:51 JV with the Changi Airport Group to develop the S$1.47b Jewel project, which is anticipated to open by end FY18.

Maintain BUY
As at end Dec-13, CMA holds S$1.0b in cash with a relatively low net gearing of 22%. Including its facilities, the group has access to S$1.35b in funding, which is adequate for its projected funding needs of S$1.19b ahead. Maintain BUY. Our fair value estimate falls marginally to S$2.40 from S$2.55 previously due to weaker valuations of listed holdings.

CapitaMalls Asia

Kim Eng on 14 Feb 2014

What’s New
CMA’s core 4Q13 PATMI came in strongly at SGD60.9m (+54.4% YoY, -6.5% QoQ), thanks to contributions from The Star Vista, Olinas Mall and Bedok Residences, offset by higher-than-expected
taxation. Robust same-mall NPI growth rates were registered for its malls, in particular in China (+13.1% YoY) and Malaysia (+8.7% YoY). This was underpinned by healthy tenants’ sales growth and high committed occupancy rates.

What’s Our View
Despite concerns over slowing consumption growth in China and competition from e-commerce, CMA’s China malls continued to enjoy tenants’ sales growth of 10.1% in FY13 (11.0% if excluding Tier 1 cities). Management attributed this to shoppers’ growing familiarity with its tenants and its regular refinement of trade mix. The two China malls expected to open in 4Q14 are Tianfu Mall and
CapitaMall SKY+ in Baiyun, Guangzhou. Management is eyeing initial yields of 4-5% for both malls, which will underpin its earnings growth in FY15. CMA’s balance sheet remains strong with SGD1.0b in cash and a net gearing of 0.22x. This provides ample headroom for opportunistic acquisitions.

CapitaMalls Asia

Maybank Kim Eng Research, Nov 20

CMA (CapitaMalls Asia) is acquiring its first mall in Guangzhou. The partially completed mall is valued at 2.2 billion yuan (S$450 million), and CMA targets to open in phases beginning December 2014. The vendor is Greenland Real Estate. We see this as an attractive acquisition and in line with CMA's strategy to build scale in regions it is already present in. Reiterate "buy". Our S$2.56 TP is pegged to a 10 per cent discount to RNAV (revalued net asset value). The property is an eight-storey mall which is part of an integrated development comprising a strata-titled office and retail elements. With a GFA (gross floor area) of 86,000 square metres, the mall is valued at 25,581 yuan per square metre on a bare-shell basis. Including fit-out, CMA estimates the total investment cost at 2.65 billion yuan (30,767 yuan psm GFA). We think this is a fairly reasonable price given that Greenland sold the strata-titled mall at an average of 35,000 psm yuan GFA some two years ago. CMA will also not have to bear development risks.

BUY

CapitaMalls Asia

OCBC on 30 Oct 2013

CMA reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. CMA’s Chinese portfolio assets continue to put up firm numbers; the overall committed occupancy rate increased to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were also up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic increased 1.5%. We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.

3Q13 PATMI up 4.0% YoY
CapitaMalls Asia (CMA) reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. In terms of the topline, 3Q13 revenue is S$91.8m – down 10.1% YoY as property management fees from China declined.

Chinese retail segment shows underlying strength
CMA’s Chinese portfolio assets showed a marginal increase in its overall committed occupancy rate to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic also increased 1.5%. In addition, on a 100% basis, same-mall NPI for CMA’s Chinese malls for 9M13 grew 12.0%. The group also opened CapitaMall Jinniu (Phase 2) in Chengdu on 29 Sep 2013 and expects a respectable NPI yield of 7% after the first year of operations. Looking forward we anticipate CMA will open two more malls in FY14, and subsequently eight malls in FY15 and after.

Stable performance in Singapore
We continue to see a stable performance in the group’s Singapore malls. 9M13 tenant sales increased 3.2% and shopper traffic was up 3.6%. Same-mall NPI growth also moved up 3.8%. Execution on its Singapore pipeline remains on track with both Bedok Mall and Westgate due to open in 4Q13 (with by now nearly 100% and 85% committed occupancy, respectively). 

Maintain BUY
We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.

CapitaMalls Asia

OCBC on 30 Oct 2013

CMA reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. CMA’s Chinese portfolio assets continue to put up firm numbers; the overall committed occupancy rate increased to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were also up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic increased 1.5%. We rate the stock with a BUY and an unchanged fair value estimate of S$2.55.

3Q13 PATMI up 4.0% YoY
CapitaMalls Asia (CMA) reported 3Q13 PATMI of S$64.8m, which increased 4.0% YoY mainly due to profit recognition from Bedok Residences, the opening of Star Vista and a higher contribution from CMT. Adjusting for one-time items and fair value gains, 9M13 core PATMI cumulates to S$179.2m, forming 93% of our FY13 forecast and we judge this quarter to be above expectations mostly due to lower-than-anticipated opening costs from newly operational malls. In terms of the topline, 3Q13 revenue is S$91.8m – down 10.1% YoY as property management fees from China declined.

Chinese retail segment shows underlying strength
CMA’s Chinese portfolio assets showed a marginal increase in its overall committed occupancy rate to 97.2% as at end Sep 13 from 96.9% as at end Jun 13. 9M13 tenant sales were up a healthy 9.8% (excluding Tier 1 cities: 11.0%) while 9M13 shopper traffic also increased 1.5%. In addition, on a 100% basis, same-mall NPI for CMA’s Chinese malls for 9M13 grew 12.0%. The group also opened CapitaMall Jinniu (Phase 2) in Chengdu on 29 Sep 2013 and expects a respectable NPI yield of 7% after the first year of operations. Looking forward we anticipate CMA will open two more malls in FY14, and subsequently eight malls in FY15 and after.

Stable performance in Singapore
We continue to see a stable performance in the group’s Singapore malls. 9M13 tenant sales increased 3.2% and shopper traffic was up 3.6%. Same-mall NPI growth also moved up 3.8%. Execution on its Singapore pipeline remains on track with both Bedok Mall and Westgate due to open in 4Q13 (with by now nearly 100% and 85% committed occupancy, respectively).

CapitaMalls Asia

OCBC on 24 Jul 2013

CMA’s 2Q13 PATMI is S$245.6m, which increased 5.9% YoY mainly due to higher fair value gains for Chinese assets and ION Orchard and profit recognition at Bedok Residences, partially offset by a lower divestment gain. Excluding one-time items, we view the 2Q13 results to be mostly within expectations and YTD core PATMI now makes up 63% of our FY13 forecast. We continue to see relatively firm NPI statistics across the group’s mall portfolio. In China (which makes up 51% exposure of total assets excl. cash), 1H13 tenants sales at CMA’s malls grew at 9.5% YoY on a psf basis. In Singapore, shopper traffic and tenant sales are up a healthy 4.2% and 3.5% YoY, respectively. Looking ahead, CMA expects to open phase 2 of CapitaMall Jinniu in Chengdu, China in 3Q13, and Bedok Mall and Westgate in 4Q13. We rate the stock with a BUY rating and an unchanged fair value estimate of S$2.55.

Core performance within expectations
CMA’s 2Q13 PATMI is S$245.6m, which increased 5.9% YoY mainly due to higher fair value gains for Chinese assets and ION Orchard and profit recognition at Bedok Residences, partially offset by a lower divestment gain. Excluding one-time items, we view the 2Q13 results to be mostly within expectations and YTD core PATMI now makes up 63% of our FY13 forecast. Topline for 2Q13 came in at S$93.4m, up 25.2% YoY as contributions rolled in from Olinas Mall (Japan) and The Star Vista (Singapore) which opened in Jul-12 and Sep-12, respectively. The group also announced an interim dividend of 1.75 S-cents per share.

Healthy NPI growth across portfolio
We continue to see relatively firm NPI statistics across the group’s mall portfolio. In China (which makes up 51% exposure of total assets excl. cash), 1H13 tenants sales at CMA’s malls grew at 9.5% YoY on a psf basis; excluding tier 1 cities, tenant sales grew by 11.0% YoY. Same-mall NPI growth is up 12.1% YoY in 1H13, and NPI yield on cost improved by an encouraging 7.1% to 24.2% across mall vintages. Chinese portfolio-wide occupancy rates is at a healthy 96.9%. The group also expects to open phase 2 of CapitaMall Jinniu in Chengdu, China in 3Q13. In Singapore, shopper traffic and tenant sales are up a healthy 4.2% and 3.5% YoY, respectively. The group expects to begin operations at Bedok Mall (with 90% committed occupancy) and Westgate (with >75% committed occupancy) in 4Q13.

Maintain BUY at an unchanged S$2.55 fair value
We rate the stock with a BUY rating and an unchanged fair value estimate of S$2.55. While the group’s share price has been impacted by fears of a credit crunch in China over the last two months, long term tailwinds from the secular growth in Chinese retail consumption remain intact, in our view, and we note that the group’s balance sheet remains strong with an effective net gearing ratio of 35% and cash holdings of S$817m (as at end Jun-13).

SG Residential Property

OCBC on 1 Jul 2013

MAS announced a set of Total Debt Servicing Ratio (TDSR) requirements whereby FIs will now account for borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. We see an immediate impact that borrowers now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles. Over the mid-to-longer term, we see these measures further constricting financing for buyers with existing property loans. That said, the current 60% TDSR limit appears to be fairly reasonable and is not intended to cool down the property market as much as to encourage financial prudence. Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Maintain BUY on CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59] and CapitaMalls Asia [BUY, FV: S$2.55].

Looking at the total debt profile
Last Friday, MAS announced the implementation of a Total Debt Servicing Ratio (TDSR) framework whereby financial institutions will take into account borrowers’ other debt obligations when granting property loans. A TDSR limit of 60% will be imposed. For TDSR calculations, a haircut of at least 30% is applied to variable income, and eligible financial assets are amortized into income streams. A mid-term interest rate of 3.5% or the prevailing rate, whichever is higher, will also be used. In addition, guarantors for a loan are now required to be co-borrowers and purchasers of the property purchased.

Closing loopholes for previous rules
An immediate impact: borrowers with existing property loans now cannot circumvent LTV and ABSD rules by purchasing homes under others while acting as loan guarantors. In addition, the TDSR framework would also be applied to the refinancing of loans. From our channel checks, this could affect, off the bat, 5%-20% of the current cross-section of buyer profiles. 

60% TDSR limit fairly reasonable
While the bar for upfront liquidity was already raised by previous measures targeting loan tenures and LTV ratios, we see these latest measures further constricting financing, over the mid-to-longer term, for buyers with existing property loans. That said, we see the current 60% TDSR limit to be fairly reasonable and it is apparent that they are not intended to cool down the property market as much as to encourage financial prudence in the sector.

Less impact on first-time buyers and upgraders
For first-time buyers and upgraders, these latest requirements would have less impact in terms of financing availability. Given that 12.5k out of 22k units in FY12 primary sales were attributed to buyers with a HDB address, we believe that first-time buyers/upgraders likely continues to drive core market demand, and our forecast for primary sales in the vicinity of ~16k units in FY13 remains unchanged.

Maintain NEUTRAL on sector
Maintain NEUTRAL on the domestic residential sector. We continue to prefer developers with diversified portfolio exposure and strong balance sheets. Our top developer picks are CapitaLand [BUY, FV: S$3.77], Keppel Land [BUY, FV: S$4.59]and CapitaMalls Asia [BUY, FV: S$2.55].

Singapore Residential Property

OCBC on 18 June 2013

URA reported that a headline total of 1,912 new private homes (including 457 EC units) were sold in May 13, which was up 2.4% MoM and down 7.0% YoY. The majority of sales (49.8% of total) continues to fall in the mass-market segment (OCR). In the mid-tier (RCR) space, there was a significant 28.1% MoM uptick in sales. Key RCR launches include Corals at Keppel Bay (366 total units, Keppel Bay Drive) 132 units sold at S$2,150 psf, and KAP Residences (142 total units, King Albert Park) 105 units sold at S$1,839 psf. We see FY13 primary sales slowing down to a rate of 16k-18k versus 22k units in FY12, pointing at a less frothy albeit still healthy environment. In view of this, the risks of incremental property curbs going forward appear more diminished, in our view. We have a NEUTRAL rating on the residential property sector and prefer developers with strong balance sheets and diversified exposure. Our top picks are CapitaLand [BUY, S$4.29], Keppel Land [BUY, S$4.53] and CapitaMalls Asia [BUY, S$2.55].

Headline total of 1,912 units sold - up 2.4% MoM. 
URA reported that a headline total of 1,912 new private homes (including 457 EC units) were sold in May 13, which was up 2.4% MoM and down 7.0% YoY. Excluding EC and landed-units, 1,442 units were sold in the month - up 6.3% MoM and down 13.5% YoY with a stake-up rate of 96.8% (versus 120.0% in Apr 13). As a result, the inventory of launched and unsold units (excl. EC/landed) in the market increased by 1.7% MoM to 5,295 units.

Uptick in mid-tier segment sales. 
The majority of sales continues to fall in the mass-market segment (Outside Central Region or "OCR") with 718 units sold, forming 49.8% of total sales and is flat MoM. A key driver of OCR sales was the launch of Stratum (380 total units, Elias Rd) which sold 269 units at a median price of S$925 psf. In the mid-tier (Rest of Central Region or "RCR") space, there was a significant 28.1% MoM uptick to 601 units sold, driven mostly by a 172.2% MoM increase in units launched. Key launches include Corals at Keppel Bay (366 total units, Keppel Bay Drive) 132 units sold at S$2,150 psf, and KAP Residences (142 total units, King Albert Park) 105 units sold at S$1,839 psf.

Diminished regulatory risks from stabilizing sales. 
We see FY13 primary sales slowing down to a rate of 16k-18k versus 22k units in FY12, pointing at a less frothy albeit still healthy environment. In view of this, the risks of incremental property curbs going forward appear more diminished, in our view. In addition, developers are likely to show a more measured approach in tendering for land ahead, though demand is likely stay firm.

Maintain NEUTRAL.
We have a NEUTRAL rating on the residential property sector and prefer developers with strong balance sheets and diversified exposure. Our top picks are CapitaLand [BUY, S$4.29], Keppel Land [BUY, S$4.53] and CapitaMalls Asia [BUY, S$2.55].

CapitaMalls Asia

OCBC on 25 Apr 2013

CMA’s 1Q13 PATMI came in at S$73.2m – up 9.6% YoY mostly due to contributions from Star Vista, four malls in Japan and Queensbay Mall, a S$6.6m gain from warehousing of two assets sold to CCDFII, better performance from CMT, ION Orchard and the China Funds, and a sale at The Orchard Residences. Excluding one-time items, we judge 1Q13 results to be somewhat above expectations. Given the H7N9 bird flu outbreak, shopper traffic for CMA’s Chinese malls showed a decrease of -0.9% YoY. On a same mall basis, however, tenant sales were up +15.9% YoY. We see worsening H7N9 fears potentially reducing retail traffic over the nearer term but a sustained long-term business impact, in our view, is unlikely. Maintain BUY with an unchanged fair value estimate of S$2.55.

1Q13 numbers above expectations
CMA’s 1Q13 PATMI came in at S$73.2m – up 9.6% YoY mostly due to contributions from Star Vista, four malls in Japan and Queensbay Mall, a S$6.6m gain from warehousing of two assets sold to CCDFII, better performance from CMT, ION Orchard and the China Funds, and a sale at The Orchard Residences. Excluding one-time items, we judge 1Q13 results to be somewhat above expectations. 1Q core PATMI, estimated at S$64.6m, now constitutes 34% of our FY13 core PATMI forecast. 1Q13 topline came in at S$91.5m which increased 29.1% YoY due to contributions from Star Vista and four malls in Japan and higher management fee revenue from new malls and improved performances.

Bird-flu unlikely to have long-term impact
Given the H7N9 bird flu outbreak, shopper traffic for CMA’s Chinese malls showed a decrease of -0.9% YoY. On a same mall basis, however, total tenant sales were up +15.9% YoY (up 8.3% on a per sqm basis). We see worsening H7N9 fears potentially reducing retail traffic over the nearer term but a sustained long-term business impact, in our view, is unlikely. NPI performance in its Chinese malls continue to show improvement, with a 15.2% YoY increase in same-mall NPI seen in 1Q13. CapitaMall Meilicheng in Chengdu began operations on 28 Apr 2013 and is 90% leased with an expected NPI yield of 5% after its first year of operations.

Singapore portfolio showing stable growth
Singapore malls in the pipeline, Westgate (>50% committed) and Bedok Mall (>70% committed), remain on track for completion in 4Q13. Singapore same mall NPI also increased 1.3% YoY, while tenant sales per sqm and shopper traffic increased 3.6% and 3.7%, respectively.

Maintain BUY
We favor CMA for its sharp execution and retail property exposure in China and Singapore which continue to enjoy firm long-term fundamentals. Maintain BUY with an unchanged fair value estimate of S$2.55.

Singapore Property

OCBC on 16 Apr 2013

URA reported that a headline total of 3,072 new private homes (including 279 EC units) were sold in Mar 13, which was up 235% MoM and 1% YoY. These healthy numbers were driven by a wave of new launches after the Lunar New Year, including D'Nest (912 total units, Pasir Ris) 699 units sold at a median S$963 psf, Bartley Ridge (868 total units, Mt Vernon Rd) 367 units sold at S$1,296 psf and Urban Vista (582 total units, Tanah Merah) 348 units sold at S$1,503 psf. We see sales reflecting still firm residential demand and an environment of continued liquidity but remain cognizant of potential incremental curbs should the housing sector show excessive activity going forward. Maintain NEUTRAL on the residential property sector and we prefer developers with strong balance sheets and diversified exposure. Our top picks are CapitaLand [BUY, S$4.29], Keppel Land [BUY, S$4.53] and CapitaMalls Asia [BUY, S$2.55].

Headline total of 3,072 units sold - up 235% MoM.
URA reported that a headline total of 3,072 new private homes (including 279 EC units) were sold in Mar 13, which was up 235% MoM and 1% YoY. Excluding EC and landed units, 2,781 units were sold in the month - up 298% MoM and 18% YoY and showing a take-up rate of 80% (versus 271% take-up in Feb 12). The inventory of launched and unsold units (excl. EC/landed) in the market increased by 15% MoM to 5,326 units.

Wave of new launches driving sales. 
The bulk of new home sales in Mar 13 were in the "Outside Central Region" with 1,808 units sold, which formed 65% of total sales and is up a whooping 445% MoM over 332 units sold the previous month. Sales in the "Rest of Central Region" also increased significantly in Mar 13 with 821 units sold – up 386% MoM. These healthy numbers were driven by a wave of new launches after the Lunar New Year, including D'Nest (912 total units, Pasir Ris) 699 units sold at a median S$963 psf, Bartley Ridge (868 total units, Mt Vernon Rd) 367 units sold at S$1,296 psf, Urban Vista (582 total units, Tanah Merah) 348 units sold at S$1,503 psf. On the other hand, we continue to see a challenging outlook for the high-end segment; 152 units in the "Core Central Region" were sold in Mar 13 - down 23% MoM in the third consecutive month of decline.

Still wary of regulatory risks in residential sector. 
We see Mar 13 sales reflecting still firm residential demand and an environment of continued liquidity but remain cognizant of potential incremental curbs should the housing sector show excessive activity. With this in mind, given residual uncertainty, we believe Mar 13 numbers to be also a partial function of developers being more aggressive in using price incentives and displaying greater urgency in execution.

Maintain NEUTRAL on sector. 
We have a NEUTRAL rating on the residential property sector and prefer developers with strong balance sheets and diversified exposure. Our top picks are CapitaLand [BUY, S$4.29], Keppel Land [BUY, S$4.53] and CapitaMalls Asia [BUY, S$2.55].

Singapore Property

Kim Eng on 16 Apr 2013

Developer launches reached new high. In March, developers released a record-high 3,489 homes for sale. This came barely a month after they had significantly held back new launches in February, when they sat out and assessed the impact of the seventh round of cooling measures effective on 12 Jan. As a result, the number of new homes sold in March clocked in at 2,793 units (excl. ECs), slightly more than the last peak of 2,772 homes in July 2009. Including ECs, the number of homes sold in March 2013 would be an astounding 3,072 units.

Buyers flocked to D’Nest. CDL’s 912-unit D’Nest achieved the best sales, with 699 units sold at a median of SGD963 psf. This was followed by CDL’s other project, the 868-unit Bartley Ridge, where 367 units were sold at a median price of SGD1,296 psf. Together with sales of balance units mainly at H2O Residences, Echelon and Hedges Park Condo, CDL had the largest market share for the month, accounting for 38% of all sales (incl. ECs).

Mass market projects continued to dominate sales. Other new launches that did well included Fragrance/Aspial’s Urban Vista (348 units sold; median price SGD1,503 psf), Tuan Sing’s Sennett Residence (238 units sold; median price SGD1,474 psf) and Sim Lian’s Hillion Residences (191 units sold; median price SGD1,340 psf). In total, 2,093 homes were sold in the Outside Central Region (OCR), accounting for 68% of all sales including ECs.

Not quite shoeboxes, but smaller units still in vogue. More than half of the available units at each of the top five selling projects were less than 1,000 sq ft each, with the exception of D’Nest (47% of the units). We reckon that developers were largely catering to the “sweet spot” of SGD1.5m per apartment. However, it would appear that investment demand remains fairly high, considering that owneroccupiers would anecdotally tend to prefer more spacious units.

Policy risks remain high. The strong resurgence in new home sales barely two months after the last round of cooling measures certainly implies that policy risks remain high, particularly when the Singapore economy experienced a worse-than-expected -1.4% QoQ contraction in 1Q13, based on the government’s advance estimates. Further measures could include i) mandating a Mortgage Servicing Ratio of 30% for all new private home loans; ii) further tightening the LTV ratios for third and subsequent home purchases; and iii) capping the use of CPF funds for downpayments.

Stick with retail and situational plays. CapitaMalls Asia (CMA SP) remains our top sector pick for its retail mall exposure. We also maintain our BUY recommendations on CapitaLand (CAPL SP), Keppel Land (KPLD SP) and OUE (OUE SP) for their diversified businesses and potential divestments. We maintain SELL on CDL (CIT SP) as we believe its valuations are rich despite the impressive sales in March.

CapitaMalls Asia

Kim Eng on 6 Mar 2013

Not resting on its laurels. We caught up with CMA’s management with investors recently and hereby present some key takeaways addressing some of the investors’ queries. Overall, we remain confident of the Group’s efforts in China and are encouraged by management’s focus to scale up in key cities. Maintain BUY.

China’s budding organized retail trade. China is a key growth market for CMA and investors were keen to find out if there is any concern of oversupply going forward. In response, management believes that organized retail is still a nascent industry and the market is big enough or existing and new players. Management reckoned that anecdotally, the entire Chinese market can support 12000-13000 malls given the
population size, up from the current 2000-3000 malls.

Advantages of scaling up. Management reiterated that its focus will be to scale up in cities where it already has a presence to reap economies of scale. This can be achieved jointly with capital partners. Having been dedicated retail landlords in China for over ten years, CMA now has an experienced workforce of around 4,000 staff, the majority of whom are locals. This invaluable human capital gives CMA an edge over its competitors (such as Hang Lung Properties), who may take years to build up their own.

Dealing with the e-commerce threat. With China’s e-commerce sales likely to overtake that of the U.S. by this year, some investors were keen to understand how CMA is coping with the threat of e-commerce. In response, CMA believes this is where active tenant management sets their malls apart from competition. CMA’s malls cater to necessity shopping, and more lifestyle retailers will be brought in to replace declining trades that are vulnerable to the e-commerce threat, like bookstores and music stores.

Best-in-class management deserves premium valuations. We  remain confident that CMA has the right strategies and expertise to succeed in China, and take comfort that management constantly tries to stay ahead of the curve to ensure their malls stay relevant. Reiterate  BUY, with a target price of SGD2.55.

CapitaMalls Asia

OCBC on 8 Feb 2013

CapitaMalls Asia (CMA) reported 4Q12 PATMI of S$184.8m - decreasing 10% YoY mostly due to lower fair value gains from its properties in China and Singapore. This brings FY12 PATMI to S$546.0m, up 19.7%. Excluding revaluation and portfolio gains, FY12 PATMI adjusts to a core figure of S$175.7m, which we judge to be mostly in-line and only 3.2% below our FY12 forecast of S$181.5m. We continue to view CMA favorably and see its share price likely benefitting from dual tailwinds ahead: 1) increasing operational traction, as a larger component of CMA’s portfolio becomes operational, and 2) relatively firm retail outlooks in China and Singapore. Maintain BUY with an unchanged fair value estimate of S$2.55.

4Q12 results mostly in line
CapitaMalls Asia (CMA) reported 4Q12 PATMI of S$184.8m - decreasing 10% YoY mostly due to lower fair value gains from its properties in China and Singapore. This brings FY12 PATMI to S$546.0m, up 19.7%. Excluding revaluation and portfolio gains, FY12 PATMI adjusts to a core figure of S$175.7m, which we judge to be mostly in-line and only 3.2% below our FY12 forecast of S$181.5m. 4Q12 topline came in at S$113.6m, up 71% YoY due to the acquisition of Olinas Mall in Jul 12, additional stakes in three malls in Japan in Feb 12 and higher project and property management fees.

FY12 Chinese tenant sales up 9.8% YoY
CMA reports that, for its Chinese portfolio over the FY12 period, shopper traffic and tenant sales (per sqm) were up 7.0% and 9.8% YoY, respectively. (Excluding Tier 1 cities, FY12 tenant sales were up a healthy 13.2% YoY.) Similarly, FY12 same-store NPI for CMA’s Chinese malls were up 16.9% YoY. Singapore shopper traffic over the FY12 period was mostly flat (up only 0.1% YoY), while tenant sales were up 2.0% YoY. Same-store NPI in Singapore showed a 2.7% growth over FY12.

Execution tracking in line with expectations
In terms of execution in its greenfield pipeline, CMA opened seven malls in China over FY12, which tracked very closely to our expectations – we were looking for eight. In Singapore, the group opened Star Vista (91% committed) and JCube (99.6% committed). Two sets of asset enhancements were also completed in Singapore over the year: Bugis + (99.5% committed) and The Atrium@Orchard (95.3% committed).

Maintain BUY with S$2.55 fair value
We continue to view CMA favorably and see its share price likely benefitting from dual tailwinds ahead: 1) increasing operational traction, as a larger component of CMA’s portfolio becomes operational, and 2) relatively firm retail outlooks in China and Singapore. Maintain BUY with an unchanged fair value estimate of S$2.55.

CapitaMalls Asia

Kim Eng on 8 Feb 2013

Core PATMI missed the mark. Excluding revaluation and portfolio gains, CMA reported a 45% YoY growth in FY12 core PATMI to SGD175.7m, missing the consensus estimate of SGD208.5m. This was due mainly to higher-than-expected corporate costs and pre-opening expenses. Operationally, the malls are largely performing in line with expectations, with quite a number of recently completed malls to contribute more strongly in FY13. CMA has proposed a final dividend of 1.625 cents, for a full-year dividend of 3.25 cents. Maintain BUY.

Earnings quality is improving. CMA’s portfolio net property income increased by 45% YoY, mainly on the back of higher contributions from Japan following the acquisition of OLINAS Mall and the additional stakes in three other Japanese malls. The NPI growth is expected to be carried over into FY13, as The Star Vista in Singapore and the seven malls in China which were opened in 2012 contribute to full-year earnings. Rental reversion is expected to remain strong for its China malls, where tenants continued to experience strong sales growth of 9.8% in FY12 as shopper traffic grew by 7%.

2013 a year of consolidation? Management suggested that while it continues to assess new deals, there may not be any major acquisitions and divestments in 2013. Despite its committed CAPEX of ~SGD1.3b over FY13-14, CMA will largely fund it from its cash-on-hand of SGD675m and additional debt, which means no immediate need for capital recycling. For this year, CMA will focus on completing Westgate mall (50% committed) and Bedok Mall (65% committed) in Singapore, and Tianfu, Meilicheng and Jinniu (Ph 2), all of which are in Chengdu. Still our top pick. We have lowered our FY13-14 core earnings

forecasts by 16% each as we raise our cost assumptions. However, CMA remains our top big-cap pick for its best-in-class retail focus and its market-leading positions in Singapore and China. Reiterate BUY, with a target price of SGD2.55, pegged at a 10% discount to RNAV.

CapitaMalls Asia

OCBC on 16 Jan 2013

CapitaMalls Asia (CMA) announced yesterday that it has been awarded a 70,400 sqm land site in Wuhan, China for RMB660m (S$128m) or RMB2,700 per sqm. The envisioned development would consist of a six-storey shopping mall and two office towers to open in 2015. Estimated total GFA is 240k sqm (160k sqm retail, and 80k sqm office), with a total development cost of ~RMB 2,800m (S$543m) or RMB 12,000 per sqm. We continue to favor CMA for executing sharply on a well thought-out strategy: active capital deployment into its growth market China through deepening its operational presence in key cities. Maintain BUY with an increased fair value estimate of S$2.55, versus S$2.16 previously, as we update our model for firmer cap rate assumptions and valuations of listed holdings.

Acquiring new site in Wuhan
CapitaMalls Asia (CMA) announced yesterday that it has been awarded a retail mall land site in Wuhan, China for RMB660m (S$128m) or RMB2,700 per sqm. It is located in the Qiaokou District – the second most densely populated district in Wuhan - at the junction of Jiefang Avenue and Gutian Second Road, which is ~8km away from the city center. This will be the group’s fourth mall in Wuhan, after CapitaMall Wusheng, CapitaMall Minzhongleyuan and CapitaMall 1818. 

Envisioned development – a shopping mall with 2 office towers
The area of the acquired site is ~70,400 sqm and the envisioned development would consist of a six-storey shopping mall and two office towers to open in 2015. Total GFA (excluding car-park) is estimated at 240k sqm (160k sqm retail, and 80k sqm office). The total development cost for the project is ~RMB 2,800m (S$543m) or RMB 12,000 per sqm, with a projected IRR in the mid teens. Management expects stabilized retail and office rentals levels of ~RMB200 sqm pm and RMB100-120 sqm pm, respectively. We understand that, because the office towers are structurally separate from the retail mall, management may opt out of developing the office component in the scenario of insufficient demand. They would also explore the option of selling the office space, instead of retaining it for investment income.

Maintain BUY with increased FV of S$2.55
In our view, the price paid for the site appears to be fairly decent though we see limited RNAV accretion from this acquisition at this junction. From the perspective of capital deployment, we continue to favor CMA for executing sharply on a well thought-out strategy: active capital deployment into its growth market China through deepening its operational presence in key cities, such as Shanghai, Beijing, Chengdu and Wuhan. Maintain BUY with an increased fair value estimate of S$2.55, versus S$2.16 previously, as we update our model for firmer cap-rate assumptions and latest valuations of listed holdings.

CapitaMalls Asia

OCBC on 29 Oct 2012

CMA reported 3Q12 PATMI of S$62.4m - up 70.8% YoY mostly due to Minhang and Hongkou contributions and increased management fees. We judge this set of results to be above consensus and our expectations, and 9M12 core PATMI, excluding extraordinary items, now make up 83% of our FY12 forecast, driven by faster than expected revenue growth at Minhang and Hongkou and a S$7.3m QoQ dip in admin expenses as mall-opening costs eased. We expect increased visibility of recurring earnings, as a larger component of CMA’s portfolio becomes operational, and relatively firm retail outlooks in China and Singapore to be positive drivers of its share price ahead. Maintain BUY with an increased fair value estimate of S$2.16 from S$1.85 previously as we update for valuations of REIT holdings and reduce the RNAV discount to par (from 10% previously).

Operational traction driving earnings surprise
CMA reported 3Q12 PATMI of S$62.4m – up 70.8% YoY mostly due to Minhang and Hongkou contributions and increased management fees. No one-time gains were booked during the quarter, and we judge this set of results to be above consensus and our expectations. 9M12 core PATMI, excluding extraordinary items, now make up 83% of our FY12 forecast, driven by faster than expected revenue growth at Minhang and Hongkou, and a S$7.3m QoQ dip in admin expenses as mall-opening costs eased. 3Q12 topline came in at S$102.1m – similarly up 52.6% YoY and above expectations.

9M12 Chinese tenant sales up 10.7% YoY
Retail conditions in China remained at healthy levels over 3Q12 though we note signs of mild deceleration in growth. CMA reported that 9M12 shopper traffic and tenant sales were up 8.4% and 10.7% YoY respectively and that, excluding Tier 1 cities, tenant sales were up 14.2%. 9M12 same-store NPI in China was up 18.4% YoY. 9M12 shopper traffic in Singapore was down 0.8% YoY, continuing a similar trend seen earlier this year due to construction works and competitive pressures. We note, however, that tenant sales still managed a 1.7% YoY uptick. 

Key projects on schedule 
Key projects were kept on schedule, with Star Vista opening in Sep 2012 (~90% of NLA committed) and the Bugis+ AEI completing in Jul 12 as planned. CMA also opened six new malls over 3Q12: CapitaMall Taiyanggong (Beijing), CapitaMall Rizhao (Rizao), CapitaMall Wusheng (Wuhan), CapitaMall Xuefu (Harbin), Raffles City Ningbo (Ningbo) and Raffles City Chengdu (Chengdu). This tracked closely to our expectations. 

Maintain BUY with higher S$2.16 fair value
We expect increased visibility of recurring earnings, as a larger component of CMA’s portfolio becomes operational, and relatively firm retail outlooks in China and Singapore to be positive drivers of its share price ahead. Maintain BUY with an increased fair value estimate of S$2.16 from S$1.85 previously as we update for valuations of REIT holdings and reduce the RNAV discount to par (from 10% previously).

CapitaMalls Asia

Kim Eng on 29 Oct 2012

Growing from strength to strength. CapitaMalls Asia announced a 3Q12 PATMI of SGD62.4m. Excluding revaluation and portfolio gains, PATMI was up 71% YoY, 21% QoQ, largely in line with expectations. The increase was largely due to the contribution from the four Japan malls acquired this year and higher management fees. CMA remains our top pick for its resilient retail property portfolio. Maintain BUY.

Tenants experiencing steady sales. Shrugging off the lackluster economic climate, CMA’s tenants continue to enjoy fairly steady sales. In Singapore, shopper traffic may have fallen marginally by 0.8% YTD, but tenant sales still edged up by 1.7% on a psf basis. Tenant sales in China grew by 10.7% YTD. However, outside of the Tier 1 cities, tenants enjoyed an even more robust growth of 14.2% YTD, underpinning CMA’s same-mall YTD NPI growth of 18.4% in China.

More malls opened in 3Q12. CMA opened six new malls in the quarter, namely in Beijing, Rizhao, Wuhan and Harbin, as well as Raffles City Ningbo and Raffles City Chengdu. In addition, The Star Vista in Singapore opened in September, with close to 90% of the NLA already committed. On a stabilized basis, The Star Vista is expected to contribute SGD15m to the PATMI annually.

Potential capital recycling in 2013? With a cash position of ~SGD600m and net gearing of 0.3x, CMA remains in strong financial health. Nonetheless, we see some monetization possibilities in 2013. For example, Queensbay Mall (last valued at SGD292m) may potentially be sold to CapitaMall Malaysia Trust. CMA’s 50% stake in ION Orchard, valued at over SGD1.4b, could possibly be acquired by CapitaMall Trust. The timing of such divestments will depend on whether acquisition opportunities arise for CMA to redeploy its capital.

Valuations still attractive. We expect CMA’s growth trajectory to continue, particularly as the NPI contribution from its China portfolio grows as more malls open and rentals stabilize. Maintain BUY, with a target price of SGD2.25, pegged at a 20% discount to its RNAV.

Singapore Property

Kim Eng on 9 Oct 2012

Sixth round of cooling measures. We had previously suggested that more property cooling measures by the Singapore government cannot be ruled out completely. True enough, the government has now stepped in to tighten rules on mortgage lending, a month after Ben Bernanke introduced “QE Infinity”. We believe this could nudge mass market property prices towards a 10% correction by end-2013, and we reaffirm CapitaMalls Asia and Wing Tai as our top BUYs.

MAS tightens residential mortgage tenure. The Monetary Authority of Singapore (MAS) has capped all new residential property loans at 35 years wef 6 October 2012. For loans to individuals, if the tenure exceeds 30 years or if the loan period extends beyond the retirement age of 65, the loan-to-value (LTV) will be capped at 40% if the borrower already has one or more outstanding residential mortgage, and 60% if he has none.

Marginal buyers likely to be weeded out. Our sensitivity analysis shows that for a SGD1 million loan, the monthly mortgage payment increases by nearly 13% to SGD3,451 on a base case interest rate of 1.5% p.a. when the loan tenure is reduced from 35 years to 30 years. We believe that marginal buyers will increasingly be forced out of the market if they deem the increase in monthly payments excessive, or if they do not have enough cash on hand for the higher downpayments should they insist on taking loans exceeding 30 years, or beyond the retirement age.

Tipping mass market segment closer to a correction. Since the mass market segment has more marginal buyers/investors, we expect the latest measures to tip the segment closer to a 10% correction by end-2013. However, in the short term, we see mass market demand still largely being supported by the tight labour market. On the other hand, we expect the measures to have little or no impact on the high- end segment. This is because the wealthy buyers tend not to be too highly-geared in the first place, and they can stomach the marginal increase in monthly payments.

Stick with CMA and Wing Tai. We view the latest round of cooling measures as necessary to remind both potential homebuyers and financial institutions of the importance of financial prudence in the continued low interest rate environment. Raising the LTV and reducing the loan tenure are the next best alternatives to raising mortgage lending rates directly. We reiterate CMA (TP:SGD2.09) as our overall top pick for its retail property exposure, and Wing Tai (TP:SGD2.10) our preferred mid-cap pick for its high-end residential exposure.