CapitaMalls Asia

Kim Eng on 16 Jan2013

CMA acquires fourth mall in Wuhan. CapitaMalls Asia (CMA) has been awarded a prime site in Qiaokou District (桥口区), Wuhan for RMB660m, or around RMB2,700 psm GFA. CMA will build a mall with a GFA of ~160,000 sqm, and has the option of building two office towers of up to 80,000 sqm in GFA. This acquisition will take CMA’s China mall count to 60. CMA remains amongst our top picks, maintain BUY.

Leveraging on its presence. Wuhan is where CMA’s Central Region Team is located, and there will be economies of scale following its fourh acquisition. The site’s attributes are attractive. It is situated at the crossroads of two arterial roads and is directly connected to Wuhan’s Metro Line 1, which is already in operation. The site will serve an immediate catchment of 500,000 people within a 5-km radius and the mall is expected to be completed in 2015.

Acquisition price is fairly attractive. CMA estimates the total Project Development Expenditure (PDE) at RMB2.8b or RMB12,000 psm. However, CMA has been given the option not to build the office component if it is deemed as not commercially viable. The PDE for a solely-retail development has been estimated at ~RMB2.1b, and management expects a stabilized yield-on-cost of 8-9%. We estimate an RNAV accretion of 2 cts/share from this acquisition.

Divestment still possible. CMA has acquired three malls in China over the past six months - the other two being a 90,000sqm-mall in Qingdao with a PDE of RMB1.5b, and a 70,000sqm-mall in Wuchang (武昌区), Wuhan, with a PDE of RMB1.1b. CMA has not ruled out the possibility of eventually recycling capital by divesting one or more of these malls into CapitaMalls China Development Fund III, of which it also has a 50% stake.

Reiterate BUY. We maintain that CMA offers investors a very good proxy to China’s much-expected growth in domestic consumption. We have tweaked our target price to SGD2.55 on the back of the acquisition and reiterate our BUY recommendation.