CMA

CMA: CIMB maintains Underperform with $1.80 TP. House visited some of CapLand’s projects in China last week and spent a few days doing ground checks on its assets in tier-2 cities (Chengdu and Chongqing) in west China before rounding it off in Beijing. House site visits gave some colour on how the group is progressing in the tier-2 cities and key takeaways are: 1) Retail footfalls in Tier-2 cities have improved marginally from a year ago but are still some way behind that of tier-1 cities. 2) Rental growth for older 1 & 2G malls has been very strong in the past few years as tenants’ sales growth was strong and many malls were under-tenanted. Spot rents are now catching up to market rates, which could imply more normalised rental growth in FY13-14 for these older malls 3) First-year NPI yields for its new properties (e.g RC Chengdu) are still suboptimal at 3-5%. What impressed is the quality of the offering. Mgt is aiming to achieve NPI yields of 6-7% after the first leasing cycle (3-4 years). Malls in tier-1 cities appear to be progressing faster in lifting NPI yields. 4) The competitive landscape continues to favour CMA. Rival malls that house visited remain poorly managed and showed visibly weaker footfalls. The residential segment appears to be still the preferred investment space for many China-based developers. Overall, believe that the stage is set for CMA to showcase its asset management capabilities. Understand that retail assets are regularly offered to CMA for sale but pricing remains unfairly pegged to the lofty residential levels. House retain Underperform on valuations. Prefer Capitaland’s valuations and stronger earnings growth profile