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.

Source: Maybank Kim Eng Research - 29 Oct 2012