CMA is a shopping mall developer, owner and manager. It has interests in and manages a pan-Asian portfolio over 90 shopping malls. Its principle business strategy is to invest in, develop and manage a diversified portfolio of real estate used primarily for retail purposes in Asia.
- CMA divests 3 developing malls in China to newly established fund CMCDF III, and subscribes to 50% of the fund
- Enhanced liquidity and lower capex to help in future growth of mall’s footprint.
- Maintain Buy with target price increased to S$1.79
What is the news?
CMA announced on Monday that it is divesting 3 of its developing malls into its newly established CapitaMalls China Development Fund III (CMCDF III), and subscribed to 50% of the fund through its wholly-own subsidiary. The 3 seed assets of the fund are CapitaMall Meilicheng, CapitaMall Tianfu in Chengdu, and Luwan Integrated Development in Shanghai. CMA will book S$35.9mn gain from the transaction after paying the relevant costs, and recognize a fair value gain of S$35.9mn on its retained stake.
How do we view this?
The divestment came in timely, in our view, to shore up its liquidity instantly and lower its capex commitment for the next 3 years. This is especially vital in times of uncertainty and slowdown of economy in China. That said, CMA had at the same time forgone 50% of the future cash inflow from the 3 projects as the 2 projects in Chengdu will be completing in 2013 and the Luwan project will be completing in 2015. We estimate the transaction could bring its end- FY12 net gearing to 0.27x from 0.32x that we had estimated earlier. The gains represent ~1.8cents to its NAV but due to the conservative estimates we had on the 3 projects, the incremental to our RNAV is ~5cents.
Investment Actions?
We factor in the potential gain from the above transaction and increase the fair value from S$1.75 to S$1.79. The retail consumption growth in China moderated to 13.8% y-y in May, compared to its 10-year average of ~17.1%, but a double-digit growth like this is still strong in our view. Maintain Buy
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