CapitaMalls Asia Limited: Improvement across the board

•    FY12 results slightly ahead of our expectations on across-the-board
operational improvement
•    Accelerated earnings growth momentum as operational assets ramp up
•    Maintain Buy, TP S$2.30

Highlights
Results ahead of our expectations. CMA reported 4Q12 net profit of S
$184.8m, -10% y-o-y, on a 71% jump in revenue. Stripping out divestment and
revaluation gains, bottomline would have been S$56.8m. The improvement came
from both investment and management segments of the business. On a full
year basis, the group achieved a 20% increase in earnings to $546m on 47%
higher turnover to S$362m. Excl revals and portfolio gains, core net profit
was $176m, significantly higher than the $36m achieved a year ago. This was
slightly ahead of our forecast. The group has declared a final DPS of
1.625Scts, bringing full year DPS to 3.25Scts, translating to a 1.5% div
yield.
Improvement across the board. Key drivers to performance in the investment
business was higher rental contribution from the Japan assets, with the
inclusion of Olinas Mall and other malls while in China, tenant sales
continue to expand by 9.8% (13.2% excl Tier 1) on 7% higher shopper
traffic. Singapore also chalked 2% higher tenant sales with 1% improvement
in footfalls. Meanwhile, underlying rents in China are expected to have
grown by 30-40%, translating to a 16.9% rise in NPI. Management fee income
also rose as more mall openings – 7 in China, 3 in Spore - had led to
greater leasing commissions.

Our View
Portfolio coming into its own. Looking ahead, with 75% of its malls
operational, including 70% of its China malls, we believe the group is on
track to accelerate earnings growth in the coming years as the rental cycle
momentum picks up. In addition, the group is scheduled to open another 6
malls in 2013, of which 3 are in China and 2 in Spore. Meanwhile, Spore
contributions will be lifted by the recognition of maiden residential
contributions from Bedok Residences (95% sold).
Gearing healthy. Balance sheet remains healthy with see-through gearing at
36%. With a projected capex of S$800m in 2013 and another S$300m in 2014,
this ratio is anticipated to remain below its optimal 50% in coming years.
Management also indicated a possible more selective pace of acquisitions,
with 21 projects on hand as well as a focus to grow its human talent pool
to put in place skill sets for its future pipeline. This is positive for
the group’s long term growth prospects.

Recommendation
Maintain Buy. We retain our Buy call on the stock with a TP of S$2.30,
pegged at a 15% discount to RNAV. We continue to like CMA for its pan Asian
retail real estate focus and its exposure into the rapid consumption growth
story in China.