CapitaMalls Asia Limited - Going into Suzhou! (DBSVickers)

BUY S$1.20 STI : 2,708.13

Price Target : S$ 2.51

• Developing its first project in Suzhou via a 50/50 joint venture

• Ready catchment when it is operational in 2015/16

• Slightly accretive to RNAV with a target IRR of 11-13%; maintain BUY and S$2.51 TP

Maiden venture into Suzhou. CMA has announced it is entering into a 50/50 joint venture with Suzhou Industrial Park Jinji Lake Urban Development Co Lts (SIPJUD) to develop and own a shopping mall with 250,000sm GFA and 2 office towers totalling 60,000sm GFA. SIPJUD is owned by the Suzhou Industrial Park (SIP) government and is the master developer of the SIP Central Business District known as Suzhou Centre. The deal is subject to approval by the Chinese government. The site is in the West Jinji Lake CBD, which is located in the heart of the western CBD of the SIP and near the traditional city centre in Suzhou. It is surrounded by offices and high-end residential apartments with an immediate population catchment of 700,000 and will be directly connected to Metro Line 1 (operational by next year) and the future Metro Line 6 from basement 1.

Expect to achieve an IRR of 11-13%. The entire development is expected to cost RMB6,740m (S$1,275m), of which CMA's share will be RMB3,370m (S$637m). This translates to cRMB21,742 psm of GFA. We believe this is an attractive investment given the large population base and high GDP per capita of Suzhou, which is 2.5x that of Shanghai. Retail sales have been growing by c.17% y-o-y. Management targets to achieve a project IRR of 11-13% and the development cost will be spread progressively over the next 4 years. Meanwhile, gearing is expected to head up slightly to over 20% by end of the year.

Maintain BUY. We continue to like CMA for its pan-Asian exposure and its ability to deploy its balance sheet into higher yielding opportunities. The latest purchase will further CMA’s presence in China with 12 malls in the East China area. We estimate that this development could add 2-3Scts to current RNAV of S$2.29. No change to S$2.51 TP, which is already pegged at a premium to RNAV.