Before the trading session yesterday, CapitaMalls Asia reported 3Q13 earnings which included a net profit of S$65.1m. Macquarie Equities Research (MER) released a research report shortly after and gave the stock an ‘Outperform’ rating with a 12-month price target of S$2.46. Some excerpts from the report are as followed.

Impact

Results highlights. Same-mall net property income (NPI) grew by a respective 3.8% and 12.0% in Singapore and China in 9M13. Occupancy rates in all geographies remained strong at over 96%, except India at 85.9% (+2.2%pt QoQ). CMA achieved portfolio net yield on cost of 7.2%, with gross yield on cost at 12.0%. 3Q13 earnings before interest and tax (EBIT) rose 3.6% YoY to S$89.5m, underpinned by profit from Bedok Residences, The Star Vista’s opening and higher contribution from CMT in Singapore but offset by lower contribution from China’s management fee business. Book value edged upwards by 0.6% QoQ to S$1.79.

China’s NPI was up 35.4% to RMB635m in 9M13, on an effective stake basis. Overall tenant sales improved 13.8% YoY and 9.8% on a per sq metre basis, despite shopper traffic growth of 1.5%. In Singapore, NPI was up 19.1% to S$181m YTD, helped by growth of 3.2% and 3.6% in tenant sales (per sq metre basis) and traffic footfall, respectively.

Update on mall openings. CapitaMall Jinniu (Phase II) in Chengdu opened in end-Sep 13 with over 90% occupancy, and is expected to achieve NPI yield of 7% after its first year of operations. In Singapore, pre-commitment of both Westgate and Bedok Mall improved QoQ, from >75% and >90% to circa 85% and 100%, respectively. Both are on track for opening in 4Q13. In 2014, four more malls will complete: two in China and two in India.

Gearing remained healthy at 21% (-3.3%pt QoQ), with 89% of total debts on fixed rates. Average debt maturity is 4.5 years, with total commitments of S$1.4b well-accounted for by diverse funding sources.

MER’s action and recommendation
CMA is MER’s top property developer pick in Singapore and also one of MER’s top picks in Singapore. MER believes earnings are more predictable than peers. MER believes the shares are attractive, trading at 1.15x P/BV and at a 16% discount to MER’s sum-of-parts valuation of S$2.46.

Source: Macquarie Research - 31 Oct 2013