Asia’s leading retail mall developer, owner, and manager CapitaMalls Asia (SGX: JS8) announced third quarter earnings this morning and delivered some mixed results. The company, a majority-owned subsidiary of real-estate group CapitaLand (SGX: C31), has a portfolio of 83 operational properties in total in Singapore, China, Malaysia, Japan, and India. The bulk of its properties are concentrated in the first two countries, with 17 in Singapore, and 51 in China. In addition, there are 20 malls in the pipeline that’s expected to be operational by 2015. This brings CapitaMalls Asia’s total portfolio to 103 malls, with a value…
Asia’s leading retail mall developer, owner, and manager CapitaMalls Asia (SGX: JS8) announced third quarter earnings this morning and delivered some mixed results.
The company, a majority-owned subsidiary of real-estate group CapitaLand (SGX: C31), has a portfolio of 83 operational properties in total in Singapore, China, Malaysia, Japan, and India. The bulk of its properties are concentrated in the first two countries, with 17 in Singapore, and 51 in China.
In addition, there are 20 malls in the pipeline that’s expected to be operational by 2015. This brings CapitaMalls Asia’s total portfolio to 103 malls, with a value of around S$34.4b.
Some basic numbers
During the third quarter, CapitaMalls Asia brought in revenue of S$91.8m, representing a 10% year-on-year fall. Profits, on the other hand, had increased by 4% to S$64.8m.
The company’s top-line had dipped due to lower property management fee from China, as there were fewer malls that opened there this year compared to 2012.
Profits had grown largely due to a 39% year-on-year increase to S$60.7m in share of results from associates and joint-ventures. Some bright spots there included CapitaMall Trust’s (SGX: C38U) 9.7% growth in quarterly distributable income to S$89m in its recent third quarter results; CapitaMalls Asia owns slightly more than a quarter of the trust.
Operational Highlights and the balance sheet
The company’s malls in its key markets of Singapore and China saw healthy growth in important operating metrics for the nine months ended Sep 2013.
Tenants’ sales in Singapore grew 3.2% per square metre year-on-year, while shopper traffic increased by 3.6%. Same mall net property income – rental income less property operating expenses – also saw a 3.8% uptick.
It was basically the same story in China as tenants’ sales increased 9.8% per square metre, shopper traffic inched up 1.5%, and same mall net property income ballooned by 12%.
To summarise, the company’s retail malls had more shoppers visiting, leading to increased sales, which in turn led to higher rental income.
The changes in a company’s balance sheet are very important for investors to note as ballooning debt might mean trouble ahead. On that front, CapitaMalls Asia’s investors can rest easy as its balance sheet had improved compared to a year ago.
Cash on hand had grown from S$599m to S$1.2b; borrowings decreased from S$3.3b to S$2.6b; and total debt to equity had gone down from 56% to 37%.
It’s probably a good move by CapitaMalls Asia to strengthen its balance sheet in light of the uncertain interest-rate environment in the years ahead, where raising rates are a distinct possibility.
What’s next for CapitaMalls Asia
In Singapore, shoppers can look forward to the future openings of the Bedok Mall and Westgate which are “on track” to open in the next quarter. Occupancy figures for new malls are important as that can affect shopper traffic and ultimately rental income.
On that front, the company has some good news as the former already has 100% committed occupancy, while the corresponding figure is at 85% for the latter.
Back in July this year, CapitaMalls Asia’s subsidiary CapitaRetail China Trust (SGX: AU8U) was chosen as the investment vehicle to acquire the Grand Canyon Mall in Beijing, China. To handle the acquisition, CRCT launched a S$59m fund-raising exercise on 23 Oct, of which the company will be taking up its pro-rata entitlement in addition to applying for excess units within allowable limits.
CapitaMalls Asia’s management is cautiously optimistic about the economic outlook in Singapore and sees “continued resilience from [its] quality portfolio of strategically located malls, which will provide a stable underlying income stream.”
In China, management is of the view that “economic and financial reforms are expected to continue, with priority to grow domestic consumption.”
To capture some of that growth – bearing in mind that China has a huge domestic-consumption-capability with more than 1 billion citizens – the company is focusing on deepening its presence in key gateway cities to grow its scale and improve financial returns.
CapitaMalls Asia was first listed on the Mainboard stock exchange back in Nov 2009 at an offering price of S$2.12. Since then, its shares have declined by 3.3% as of yesterday’s close at S$2.05.
Early investors in the company from its listing date have not fared well as even the broader market, represented by the Straits Times Index (SGX: ^STI), grew by around 15% in the same time.
Going forward, the company’s long-term corporate results (and hence its share price) rides heavily on both Singapore and China’s future economic growth. Investors ought to keep an eye on that.
At yesterday’s closing price of S$2.05, CapitaMalls Asia is valued at 1.15 times book value and 14 times trailing earnings. The company’s shares also carry a dividend yield of 1.6% based on its pay-out last year.
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