Not resting on its laurels. We caught up with CMA’s management with investors recently and hereby present some key takeaways addressing some of the investors’ queries. Overall, we remain confident of the Group’s efforts in China and are encouraged by management’s focus to scale up in key cities. Maintain BUY.

China’s budding organized retail trade. China is a key growth market for CMA and investors were keen to find out if there is any concern of oversupply going forward. In response, management believes that organized retail is still a nascent industry and the market is big enough for existing and new players. Management reckoned that anecdotally, the entire Chinese market can support 12000-13000 malls given the population size, up from the current 2000-3000 malls.

Advantages of scaling up. Management reiterated that its focus will be to scale up in cities where it already has a presence to reap economies of scale. This can be achieved jointly with capital partners. Having been dedicated retail landlords in China for over ten years, CMA now has an experienced workforce of around 4,000 staff, the majority of whom are locals. This invaluable human capital gives CMA an edge over its competitors (such as Hang Lung Properties), who may take years to build up their own.

Dealing with the e-commerce threat. With China’s e-commerce sales likely to overtake that of the U.S. by this year, some investors were keen to understand how CMA is coping with the threat of e-commerce. In response, CMA believes this is where active tenant management sets their malls apart from competition. CMA’s malls cater to necessity shopping, and more lifestyle retailers will be brought in to replace declining trades that are vulnerable to the e-commerce threat, like bookstores and music stores.

Best-in-class management deserves premium valuations. We remain confident that CMA has the right strategies and expertise to succeed in China, and take comfort that management constantly tries to stay ahead of the curve to ensure their malls stay relevant. Reiterate BUY, with a target price of SGD2.55.

Source: Maybank Kim Eng Research - 06 Mar 2013