CapitaMalls Asia Limited - Raises stake in Shanghai assets (DBSVickers)

BUY S$1.175 STI : 2,824.96

Price Target : S$ 2.51

• Acquiring an additional 50% in Minhang Plaza and Hongkou Plaza

• Deepening exposure in Shanghai

• Maintain Buy, TP S$2.51

Taking majority stakes in 2 Shanghai malls. CMA announced it is buying an additional 50% stake each in Minhang Plaza (US$262.6m) and Hongkou Plaza (US526.4m) in Shanghai for US$789m (S$949.7m). This will give the group an effective 65% share in the first mall and 72.5% stake in the latter. Minhang Plaza is a retail/commercial development located in the centre of Minhang District in Shanghai with 88,736sm of retail GFA (59,405sm NLA) and 58,107sm of office area. Minhang Plaza is currently 98% occupied and the retail portion is already operational. Hongkou Plaza is located opposite the Hongkou Football Stadium and connected to metro lines 3 and 8 and is an lighting point for 6 bus lines. It has 170,266sm of retail (92609sm NLA) and 50,515sm of office space. Hongkou Plaza is 90% leased and is expected to open l ater this year.

Deepening exposure into Shanghai. The deal was based on the underlying property price of RMB3,386m (RMB23,043psm) for Minhang and RMB6,784.4m (RMB30,729psm) for Hongkou or a slight 1% discount to valuation. This translates to a NPI yield of at least 5% for Minhang and 4% for Hongkou. We view this strategy as positive in deepening its exposure to Tier 1 city China malls with majority/full ownership of 6 malls in Shanghai as well as increasing its share in an income-generating asset. While the initial yield for Hongkou Plaza seems relatively tight vs the rest of its portfolio, we believe there is room for improvement due to the low retail space utilisation of only 54% presently. With this acquisition, CMA would have done c$2bn worth of new investments group-wide YTD in Singapore, Malaysia and China. The group intends to fund this acquisition via internal resources and bank borrowings. Assuming full debt funding, this could utilize CMA’s balance sheet capacity, resulting in a slight gearing ratio of 12%. This is still healthy and the group is well-placed to further optimize its balance sheet.

Maintain Buy, TP S$2.51. CMA remains a major player in the retail real estate niche that offers leverage into the pan Asian consumption growth story. Maintain Buy. The stock is trading at 0.77x P/bk NAV and at a steep 48% discount to RNAV of S$2.29.