CapitaMalls Asia Limited: Building critical mass in Wuhan, Price Target: S$ 2.30

•    Acquires 4th site in Wuhan
•    Strong catchment, good connectivity and established network to yield
good initial returns
•    Maintain BUY, TP revised to S$2.30

Adds 4th site in Wuhan. CMA announced it had been awarded a shopping mall
site in Wuhan. It secured the 70,400sm site with potential for 240,000sm of
GFA (excl. car park) for RMB660m (RMB2,700psm GFA). The site is
strategically located at the junction of Jiefang Ave and Gutian Second Rd
in Hanyang, about 8km from the city centre, and has a direct connection to
the Gutian 2nd Rd metro station on Line 1. There is an estimated 80k
population catchment within 1km of the site and 0.5m within a 5km radius,
with potential reach 3m population when the 6th Jianghan Bridge is
completed by 2015.

Mid-teens project IRR. The development will comprise a mix of retail
(c.70%) and office space. In the preliminary plans, the office space to be
housed in two separate blocks can be built for enbloc sale and based on
demand, which will improve the returns of the project in the longer run.
Using a total development cost of RMB2.8b (RMB12kpsm GFA) and stable rents
of RMB150-200psm/mth, the development is expected to give an initial net
yield of 4-5% when completed in 2015, and rise to 8-9% when stable. This is
in line with returns for newer malls in its portfolio. Furthermore,
building a critical mass of malls in this area would enable the group to
leverage on its existing network and experience in Central China. After
this acquisition, balance sheet remains healthy, with see-through gearing
expected to remain at about 40%, including the current land purchase and
expected drawdown for construction over the next year. With yield
compressed for its listed REITs, which have rendered them more effective
currency platforms, the group will have even greater flexibility in its
capital management exercises going forward.

Maintain BUY. We raised RNAV and TP by 1ct to S$2.70 and S$2.30 after
adjusting for the latest transaction. We believe targeting the mass and
mid-market consumers amid rising urbanisation in Tier 2 cities should yield
positive returns in the medium term. We continue to like CMA for its lead
in the Asian retail real estate sector. Earnings and NAV growth should be
sustainable with the gradual ramp up if its ongoing operations