CapitaMalls Asia

Kim Eng on 4 Sept 2012

Carrefour to exit Singapore market. Hypermart operator Carrefour has announced its intentions to cease operations in Singapore. As a result, it will be giving up its space at Plaza Singapura (PS) by the end of the year. Carrefour is also a major tenant at CMA’s malls in China, but the French retailer remains adamant about staying on and growing its business there. We do not expect Carrefour’s decision to have a material impact on CMA’s operations. Maintain BUY.

Opportunity to readjust tenant mix at PS. Carrefour currently operates an 81,700-sq ft store at PS, where it has been since 2003. We estimate that Carrefour currently pays a rent of about SGD6.50 psf pm, significantly below the mall average of about SGD12.50 psf. After Carrefour’s departure, CapitaMall Trust will be able to optimize the space, and we are confident other supermarket operators like Cold Storage will be keen to move in. The change is also timely, as the AEI works at Atrium@Orchard is likely to complete by the year’s end.

Carrefour to stay in China for now. Carrefour is also tenant in three of CMA’s malls in China. For example, under CapitaRetail China Trust’s (CRCT) portfolio, Carrefour accounted for 9.7% of committed GRA and only 4.3% of gross rental income in FY11. Carrefour’s management believes that it is a market leader in China and stated that it will continue to strengthen and adjust its strategy there. Hence, we see the probability of Carrefour exiting CMA’s China malls as low for now. Even if it were to exit, CMA should be able to rope in other operators, e.g. Beijing Hualian and TESCO, to fill the void.

China to contribute 31% of core EBIT by FY13F. Despite concerns of an economic slowdown, CMA’s malls in China still enjoyed shopper traffic and tenant sales growths of > 10% YoY. For the rest of the year, the Group will be ushering in six more malls in China, including RC Chengdu which was launched yesterday. The Star Vista in Singapore will also officially open this month with many new-to-market names.
Maintain BUY. CMA remains our top pick amongst developers, with a potential upside of 27% to our target price of SGD2.09.