Last Friday, CapitaLand announced it had raised its unconditional offer price for CapitaMalls Asia (CMA) to $2.35. Since, the stock has risen 1%, versus the local benchmark index’s 0.1% dip. On the same day of the announcement, Macquarie Equities Research (MER) had released a research report addressing the higher offer price for CMA put forth by CapitaLand and why they think that a successful privatisation of CMA may be a stock price catalyst for CapitaLand…

CapitaLand announced it has revised its offer price for CMA to S$2.35 (final offer price). The 90% acceptance condition has been waived and the offer is unconditional. The offer will close on 9 June 2014.
 
Impact
Final offer increased to S$2.35.The final offer price is ex FY13 final dividend of 1.75 cents. Hence, it represents a 6.7% premium over the adjusted initial offer price of S$2.2025. CMA shareholders who have earlier accepted the offer will be entitled to receive the final offer price. The waiver of the 90% acceptance level condition provides certainty of acceptance to CMA shareholders who accept the offer. CapitaLand holds 72.9% of CMA as at 15 May 2014.

Values CMA at S$1.26x P/BV.Based on CMA’s latest reported book value of S$1.87 as at March 2014, the final offer price implies a 1.26x price-to-book value. It is also close to MER’s valuation of S$2.41. MER believes shareholders will accept the offer.
 
Action and recommendation
A simple and nimble group structure should enable CapitaLand to react faster to new investment opportunities, especially in mixed-use integrated developments, which is the group’s core strength, in MER’s view.
 
MER expects the discount to Real Net Asset Value (RNAV) for CapitaLand to narrow given the group is more simplified without two major listed entities (AustraLand Property Group and CMA). Recall that CapitaLand traded at a 15% discount to RNAV three months before the listing of CMA in November 2009 and traded at a 25% discount three months after the IPO.
 
In MER’s view, CapitaLand’s shares look attractive, trading at a 0.81x P/BV and a 39% discount to their RNAV of S$5.11.
 
MER has an Outperform rating on CapitaLand with a 12-month target price of S$4.09. MER believes the stock price catalyst will come from a successful privatisation of CMA by June 2014 and new NAV accretive investments.

Source: Macquarie Research - 22 May 2014