Earnings growth set to continue. We expect CMA to report a 1Q13 PATMI of ~SGD44m (+12% QoQ; 22% YoY) on 24 April. The improvement will be mainly on the back of full-quarter contribution from the malls completed last year and positive rental reversion. We will also watch for updates on its acquisition outlook. CMA remains our top pick amongst Singapore developers. Reiterate BUY.

Operating metrics of malls remain healthy. CMA’s REITs account for close to half of its core PATMI and judging from their respective 1Q13 results, the retail scene in CMA’s key markets appear healthy. More specifically, in Singapore, CapitaMall Trust’s shopper traffic and tenants’ sales grew by 4.3% and 2.4% YoY respectively. In China, CRCT’s shopper traffic and tenants’ sales rose by 10.8% and 11.1% respectively. We would expect to see similar operating metrics from the rest of CMA’s portfolio, which will help to underpin future rental reversion.

Beefing up Fund III. CMA announced last week that it has transferred its stakes in its Qingdao project and the Wuhan 1818 project acquired last year to CapitaMalls China Development Fund III (CMCDF III). CMA retains an indirect 50% stake in these malls via its stake in the fund. This is expected to reduce CMA’s capital commitments by ~SGD260m, which allows CMA to look for more acquisition opportunities, possibly including in Hefei as discussed below.

Next stop, Hefei? According to local media hfhouse.com, CMA is reportedly eyeing a presence in Hefei, the capital city of Anhui province of China. Citing an unnamed source, CMA is purportedly looking to acquire a commercial property from Anhui’s top developer, Landing Group (安徽蓝鼎控股). If true, this will mark CMA’s first foray into the fast-growing city which lies between Shanghai and Wuhan. Pending confirmation and details of any acquisition, we believe having a presence in Hefei would be positive for CMA.

BUY for growth and market leadership. With CMA’s track record and market leadership, we maintain our BUY recommendation with a target price of SGD2.57, pegged to 10% discount to RNAV.

Source: Maybank Kim Eng Research - 23 Apr 2013