More growth to come for CMA

- FY13 core PATMI was in line with expectations, growing 40% YoY to SGD246.3m following full-year contributions from The Star Vista and Olinas Mall.

- Malls continued to enjoy high occupancy rates of >96% in China, Malaysia and Japan, and 99.3% in Singapore.

- Maintain BUY with TP of SGD2.60, pegged to a 10% discount to RNAV. Reiterate CMA as our top pick in the Singapore property space, with visible earnings growth in FY14-15.

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

Chinese data points to modest recovery

Signs of economic stabilization in China
After significant uncertainty over the last twelve months about the extent of China’s economic slowdown, we note that latest data-points have been mostly above view, painting a picture of modestly recovering fundamentals. In early Sep, we saw the HSBC PMI increased to 50.1 for Aug 2013 – above expectations and up from an 11-month low of 47.7 in Jul 2013 – which suggests that the Chinese manufacturing sector has turned the corner on new orders and output. This was corroborated by the official PMI a week later which also rose to 51.0 for Aug 2013 and beating market expectations. In addition, Chinese authorities yesterday reported that exports increased more than expected in Aug 2013, rising 7.2% YoY and beating a 5.5% consensus. Inflation data was also positive with consumer prices coming up 2.6% which left room for extra stimulus from authorities should we see a sudden downside acceleration. We believe these datapoints increasingly point to a base case of at least a 7.5% economic growth rate this year, which is the target set by authorities. We look forward to Chinese industrial production and retail sales reports today, which are expected to further add to the picture of recovery.

Long term fundamentals of Chinese mall portfolio intact
We believe increasing signs of stabilizing economic fundamentals in China reinforces the outlook of CMA’s Chinese mall portfolio, which has continued to put up firm numbers year to date. 1H13 tenants sales at CMA’s Chinese malls grew at

CMA strong rebound suggests more upside to come

Key support still intact. CapitaMalls Asia is likely to see further recovery after rebounding strongly at the $2.02 key resistance-turned-support on significant volume yesterday; at the same time, its 1-month downtrend resistance was also conquered.

Indicator turning bullish. The MACD is on the brink of initiating a bullish crossover; this suggests that the upside momentum is improving significantly.

Next resistance at $2.25. The counter could head higher towards the next key obstacle at $2.25 (key peak) in the weeks ahead.

Immediate support at $2.02. Meanwhile, we advocate a stop-loss exit at around $1.96, which is slightly below the firm resistance-turned-support level at

CMA good round off to FY12

• 4Q12 results within expectations
• Firm tenant sales in China
• Steady execution on greenfield pipeline

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

Not Much Ado About Carrefour’s Adieu for CMA

- Carrefour’s imminent exit from Singapore will not have material impact on CMA’s portfolio. Currently occupying 81,700 sq ft of space at Plaza Singapura, we see this as a good opportunity for CapitaMall Trust to readjust its tenant mix.

- We are not expecting this to herald a similar exit from China either. Carrefour currently only leases space at three of CMA’s malls in China, but remains committed to growing its operations there.

- CMA remains in good stead to benefit from increased contributions from its malls in China, which are still enjoying shopper traffic and tenant sales growths of more than 10% p.a. Maintain BUY and target price of SGD2.09.

CMA first divestment since 2010

Company Overview
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?

CMA earnings growth driven by improved operational

TP of S$2.02


Highlights
Results within expectations, makes up 19% of full-year forecast. CMA reported PATMI of S$66.8m, up 36% y-o-y on a 41% higher revenue of S$70.9m. Stripping out S$30m of fair value gains from the acquisition of the remaining stakes in three Japan assets, a bottom-line of S$36m makes up c19% of our full-year estimate. Contributing to earnings were also better operating performances in Singapore, China and Queensbay Mall in Malaysia; a small maiden S$2m contribution from the purchase of the remaining 50% stake in the Minhang and Hongkou malls ( acquired last month); and increased income from a higher stake in three Japan assets. Portfolio-wise, NPI yield continued to improve across its major markets (except for Japan and India) with Singapore rising from

Expect CMA recurring earnings to increase significantly.

RECURRING EARNINGS POISED TO JUMP
• 4Q11 results in line
• Recurring earnings to jump 84%
• Fair value raised to S$1.79

FY11 results above consensus.
CMA reported FY11 PATMI of S$456m, down 15.8% YoY. Adjusting for one-time gains in 4Q (S$177m), earnings would fall to S$279m which is above consensus but in line with our FY11 forecast of S$285m. FY11 topline came in at S$246m, which is mostly flat YoY. Again, this beat consensus ($226m) but was in line with our expectations for S$241m.

Expect recurring earnings to increase significantly.
Major Shanghai malls, Minhang and Hongkou, have successfully opened for retail operations with opening costs already accounted for.

CMA’s exposure to China is often misunderstood

TP of $1.92.

We initiate coverage on CapitaMalls Asia (CMA) with a Buy recommendation and target price of $1.92, which is pegged at a 20% discount to RNAV and implying 38% upside. As more of its malls become stabilised, we expect CMA’s earnings to grow at 18% CAGR over the next five years – no mean feat considering the current uncertain state of the global economy.

Down but not out. Since its initial public offering (IPO) in November 2009 which was 1.7x oversubscribed, CMA has been the worst-performing STI component stock, falling by 34.2% from its IPO price of $2.12 whereas the STI gained 6.4% in the same period. We believe that part of the underperformance was due to CMA’s China exposure, which we estimate currently accounts for 54% of its Gross Asset Value.

CMA is currently trading at a 42% discount

J.P Morgan - Price Target: S$2.35

Company description
CapitaMalls Asia is an integrated real estate company purely focused on the development, operation and investment management of shopping malls across Asia. CMA has interests in and manages a portfolio of 94 retail properties across 49 cities in Singapore, China, Malaysia, Japan and India. CMA is part of the CapitaLand group.

Key drivers of performance in an equity market recovery
We believe that the performance of CMA’s China portfolio will be the key share price driver in the coming year. With 3 malls, accounting for 28% of CMA’s China NAV, to be opened by 4Q11, more than 40% of the group’s China NAV will be operational in 2012. This together with stable and strong same store NPI growth of c. 20% and a stabilizing cost base, we do see the group more than double its China income in 2012 and achieving a 30% core earnings growth in 2012.

How much recovery has already been priced in, what are the key metrics?
The stock is currently trading at a 42% discount to our SOTP valuation of S$2.35/unit, and0.9x historical book. In fact, if we were to value the listed part of CMA at current market value, the implied discount to the unlisted book is 27%, an undemanding level that has priced in certain execution risk in our view.

Where’s the earnings risk for 2012?
Our call is predicated on the view that the operation in CMA’s China portfolio will start to stabilize in the next 12 months with cost well contained. The challenging operating environment for the sector and the risks of further cost escalation would be the key risks in our view for the group's earnings outlook.

Price target and key recovery risks
Our Dec-12 price target is based off our SOTP valuation at S$2.35/share. Key risks to our rating and price target include the group's inability to turn around the China operations in the next 6-12 months and the group's inability to deploy surplus capital.

Another 3 malls in China to open in 4Q11

Phillip - fair value S$1.77

- CapitaMalls Asia reported 3Q11 revenue of $66.9mil, 57.3% y-y higher, but PATMI of $36.5mil was 30.3% y-y lower.
- Fee income segment reported better than expected results
- Core earnings from China continued to fall below our expectations, but could be improved from FY12 onwards following the increase of stakes in 2 Shanghai malls
- Another 3 malls in China to open in 4Q11
- Maintain Buy with fair value increased to $1.77


AM Fraser

CapitaMalls Asia - Q3 net profit falls 30.3% to S$36.5m CapitaMalls Asia reported net profit for the 3Q11 fell 30.3% to S$36.5m, from the same period a year ago, weighed by a one-off provision for its Hong Kong listing expenses, despite a 57.1% growth in revenue to $66.9m.


CIMB - target price of S$1.16

CapitaMalls Asia. Start-up costs for new investments continued to plague CMA, a likely feature for the next few quarters. NPI yields, while growing on a same-mall basis, remained sub-optimal. Cost provisions for its dual listing didn’t help. Overall, 3Q11 results disappointed. Core earnings of S$43m form 17% of our FY11 forecast and 15% of consensus. 9M11 earnings are at 63%. We tweak our RNAV up on updates to our model and lower our FY11 EPS.

Maintain Neutral with target price of S$1.16 pending clearer signs of NPI uplifts. We deem its dual-listing exercise in HK a non-event

CapitaMalls Asia revenue came in at S$66.9m

OCBC

CapitaMalls Asia: 3Q11 PATMI at S$36.5m

CapitaMalls Asia (CMA) reported 3Q11 PATMI of S$36.5m, down 30.3% YoY versus restated 3Q10 PATMI of S$52.4m. But it was still above our expectations due to lower-than-expected operating expenses. Revenue came in at S$66.9m, up 57.3% YoY, mainly due to Queensbay Mall acquired in Apr 11.

For operational malls in the portfolio, we saw occupancy rates in Singapore dip marginally from 98% the previous quarter to 96.6%, while occupancy rates in India increased from 91.6% to 96.1%. From a vintage breakdown perspective, we continue to see YTD NPI yields increase across all vintages; in particular, we saw malls opened in 2009 clock an increase in annualized yield from 3.5% to 5.1%. We will discuss the results further with management and, in the meantime, put our BUY rating and fair value of S$1.67 UNDER REVIEW. (Eli Lee)