CapitaMalls Asia Limited - Improving China operations (DBSVickers)

BUY S$1.25 STI : 2,720.21

Price Target : 1.93 (Prev S$ 2.51)

Reason for Report : 3Q11 Results

Potential Catalyst: Improving China cashflow, capital deployment

DBSV vs Consensus: FY11 above, FY12 below

• In line set of results, achieved 83% of FY11 forecast

• Portfolio operations improving, better China cashflow expected from new acquisitions

• Adjusted FY11/FY12 forecasts by 33%/-15% to update on mall completion schedule

• Maintain Buy with revised TP of $1.93

Within expectations. CMA reported 3Q net profit of $36.5m, - 30.3% yoy on a 57.3% higher revenue of $66.9m. This was due to reduced associate contributions from lower development profits from Orchard Residences, forex losses, provision for HK listing expenses of $4.7m and absence of divestment gains. This was partially offset by rental revenue from Queensbay Mall in Malaysia and higher fund and property management fees. For the 9M, it achieved PATMI of $250.6m, 83% of our FY11 forecast.

Stabilising operations. On the operations front, portfolio occupancy remained at 96-97% while YTD shopper traffic and tenant sales continued to improve yoy by 3-8% and tenant sales +7-17% (excl Japan –7.2%). Same store NPI growth range from 5- 20% translating to a NPI yield of 3.9-6.7%. Spore operations remained stable, generating NPI yield of 5.7% and PATMI of $47m. China remained stable at 5.5% NPI yield with PATMI of $7m, thanks to better fee income, partially offset by forex translation loss. Msia contributed $9m on a NPI yield of 6.5%. Looking ahead, Hongkou Plaza in Shanghai, CM Crystal in Beijing and CM Xuefu in Harbin are expected to open in Q4 and another 8 (2 Spore, 6 China) in 2012. This will increase the completed portion of China portfolio to c60% be end 2011. Forward cashflow should also improve with recent acquisition of Minhang and Hongkou Plaza and as the development pipeline is gradually converted to operating assets. In addition, new acquisitions will extend the visibility of growth ahead. YTD the group had invested c$2b worth of new acquisitions. Balance sheet remains healthy with gearing at 6% and expected to rise a little higher by year end.

Maintain Buy. We have adjusted FY11 and FY 12 earnings to $299m (+33%) and $222m (-15%) to update the completion schedule of malls under development. We continue to like CMA for its pan Asian retail real estate exposure and its deployment of balance sheet capacity into new investments. Maintain Buy. However, we are revising TP to $1.93, premised on a 20% discount to RNAV of $2.41, from $2.51 previously (based on a 10% premium) to move it in line with the assumed TP discount for Hang Lung Properties.