P lacement should be viewed favourably. CapitaMall Trust (CMT) recently placed out 125m new units at SGD2.00/unit to raise SGD250m in fresh funds. FY13 DPU dilution is minimal at 3.6%, but we believe the placement will provide the necessary funds for some very interesting new asset enhancement plans that could potentially add another 6% to our fair value, raising the target price to SGD2.42. We think CMT is very likely to reposition Funan DigitaLife Mall, in keeping with the upcoming injection of buzz into the area. Reiterate our BUY recommendation.

Possible uses for proceeds. In its announcement, CMT stated that up to 99% of the proceeds will be used to finance capex and asset enhancement initiatives (AEI) and refinance debt. In our view, AEIs will consume most of the proceeds. While no plans have been revealed, we believe previously shelved (and now largely forgotten) plans for Funan and Tampines Mall are likely to be revisited, and these two malls could be the highlights of CMT’s AEI pipeline for 2013 and beyond.

Funan redux. In 2007, CMT obtained planning permission to increase Funan’s plot ratio from the existing 3.89x to 7.0x, with most of the additional GFA meant for office use. Despite having already paid SGD65.2m in Differential Premium, the plans were shelved due to the Global Financial Crisis. We think it is now timely to relook at the viability of proceeding with the office building, which we think could potentially lead to an NAV-accretion of 5 cents/unit.

Making Tampines Mall even better. Also in 2007, CMT obtained planning permission to increase Tampines Mall’s plot ratio to 4.2x from 3.5x, with the additional GFA approved for office use too. Tampines Mall may already be CMT’s most valuable suburban mall at present at SGD2,495 psf, but we expect management to be able to come up with new ideas to enhance the mall’s value.

More growth ahead! CMT has proven over the last decade that it has the know-how to extract maximum value from its properties. With the potential of exciting AEI plans in the pipeline, we remain confident that CMT can deliver DPU growth and maximize value for unitholders. We adjust our DDM-derived target price to SGD2.29 following the placement, and reiterate our BUY recommendation.

Source: Maybank Kim Eng Research - 26 Nov 2012