Buy (Maintained)
Closing Price S$1.175
Target Price S$1.76 (+49.8%)
Increase stakes in two prime assets in Shanghai with total investment of S$949.7mil
Post-acquisition effective stakes would be 65% for Minhang Plaza and 72.5% for Hongkou Plaza
Positive move as assets will be income-generating by end-2011
Maintain Buy with fair value raised to S$1.76
Increase stakes in Minhang Plaza and Hongkou Plaza in Shanghai CMA announced that it has entered into conditional agreements to acquire the remaining 50% stakes each in Minhang Plaza and Hongkou Plaza in Shanghai for about S$949.7 mil in total. CMA’s post-acquisition effective stakes in the properties will be 65% (previously 15%) and 72.5% (previously 22.5%) respectively. The purchase prices were derived based on the latest valuation of Minhang Plaza at approximately S$632.5mil (Rmb23,059 psm), and Hongkou Plaza at S$1,278.1mil (Rmb30,990psm). The proposed acquisitions will be funded through internal funds and external borrowings, and are subject to the relevant governmental approvals.
Income-producing assets
As Minhang Plaza has commenced operations and Hongkou Plaza is expected to commence operations by end-2011, we see the acquisitions as a positive move by CMA to strengthen its bottom-line almost immediately. The management expects the mall of Minhang and Hongkou to generate yield of 5% and 4% respectively after the first year of its opening. Occupancy level at Minhang is c.98% committed while Hongkou is c.90% commited. Following these acquisitions, CMA would have spent approximately $1.5bil YTD, out of the committed $2bil total investment value for FY11.
Maintain Buy with fair value raised from $1.75 to $1.76
We adjust our estimates to factor in the acquisitions and RNAV is increased from $1.94 to
$2.07. However, we ascribe a higher discount to RNAV of 15% (previously 10%) to reflect the current uncertain market sentiment due to concern over the Euro zone debt crisis and health of the US economy. Consequently, fair value is raised marginally from $1.75 to $1.76, representing a potential upside of 49.8% to its latest closing price. We believe the stock is heavily oversold at the current level (PBR 0.74x) given its strong development pipeline of retail malls in China and Singapore. We maintain our Buy recommendation.
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