LenaHuat wrote:only 43% of its NAV is operational
ML reduced RNAV from $1.95 to $1.53. So far is the most bearish reports I read.
Downgrade to underperform; Cut POWe cut our rating on CapitaMalls Asia (CMA) from Neutral to Underperform and PO to S$1.30/shr (15% disc. to RNAV). Disappointing results together with no signs of near term growth in China contribution has driven our ratings change. With earnings now only expected to show significant improvement in 2013, we do not believe current valuations support share price.
Mall opening schedule to limit earnings upside: Pre opening expenses for CMA’s malls was a key contributor to a sharp spike in operating expenses during the quarter. With an additional 12 malls opening in the next 18 months, we expect higher costs to be a recurring theme in future results. Furthermore negative NPI yield within the initial opening stage of mall operations will dilute growth generated from completed assts.
Sustainability of higher dividend payout: CMA has annouced an increase in dividend in 1H11 to 1.5cps. Given that CMA is still undertaking extensive development projects, we are concerned with the higher payout. Noting that CMA is currently generating
negative free cash flow and has extensive capex commitments over the next 3 years, we believe a core EPS payout ratio of 85% is excessive for a developer.
2011 – 2013 earning cut by 26%: We cut our FY11-13 earnings by an average of 26%. We lower our rental growth and margins assumption for CMA's China and India malls. We were previously too optimistic with regards to the ramp up and timing for new malls to turn profitable.
Reduce RNAV estimate: We reduce our RNAV to S$1.53/shr (from S$1.95/shr) to account for changes in our operating assumptions, gestation periods, the acquisition and development of new sites as well as updates to changes in market value of listed REITs.
Moving to a 15% discount to RNAV: Listed in 2009, CMA has limited trading history, hence historic trading bands are not a reliable gauge of future valuations. To determine our discount to RNAV, we have looked at the geographic split and stage of development of CMA’s asset vs the trading bands of peers with comparable assets. Our new PO of S$1.30/shr is set at a 15% discount to RNAV of S$1.53/shr.
Valuations: CMA is currently trading at
32x our FY12E P/E and 5% disc. to RNAV, making it one of the most expensive developers within our coverage. Given expected earnings headwinds over the next 12 – 18 months, we do not expect share price to be supported by current valuations. We believe an inflection point in earnings will be a key catalyst for a change in view, however, we now do not expect this to happen until 2013 vs 2012 previously.
Source: Bank of America Merrill Lynch
by iam802 » Thu Jul 07, 2011 11:42 am 
