CapitaMalls Malaysia Trust (June 15, RM1.19)
Maintain buy at RM1.17 with target price of RM1.27: We are positive on CMMT's latest RM310 million East Coast Mall acquisition given that it is yield accretive and attractive in pricing. More importantly, it would enhance our 2012-13 earnings forecasts by 10%-11%.
The purchase will be funded by a placement of up to 299 million new units (estimated RM332 million in proceeds, assuming issue price of RM1.11). We maintain our forecast and RM1.27 target price with a "buy" call.
CMMT is acquiring East Coast Mall (ECM) in Kuantan for RM310 million cash from Astral Realty S/B (property investment as principal activities). Together with RM16 million acquisition-related costs and RM4 million working capital, total acquisition cost is RM330 million. The cost will be funded by debt and equity. ECM, the modern family lifestyle mall, (retail space: 441,342 sq ft NLA, 1,170 parking bays) is currently 97%-occupied.
Positive on the deal because: (1) the asset is attractively priced at a 6.1% discount to its market value of RM330 million; (2) it is a yield accretive acquisition with 7.1% property yield, versus 6.1% implied yield (assuming 30% funded by debt at 4.8% average debt cost; and (3) it is strategically located. ECM is situated in the heart of Kuantan town and is close to Zenith Hotel and Sultan Ahmad Shah International Convention Centre.
Proposes up to 299 million new unit placement to fund the acquisition of ECM (20% of existing units). Price will be determined via a book-building exercise. Assuming an issue price of RM1.11 (5% discount to current price), the placement would raise RM332 million and reduce CMMT's gearing ratio to 0.29 times from 0.33 times (end-1Q11), well below the SC's 0.5 times gearing cap.
We estimate a 10%-11% earnings enhancement post-acquisition based on the existing 97% occupancy rate. Post-ECM acquisition, CMMT's total assets will increase by 14% to RM2.7 billion whilst total NLA will jump by 22% to 2.5 million sq ft.
Apart from strengthening its position in the local retail market, the purchase also means its income base will be more diversified from Penang and the Klang Valley to the east coast of Peninsular Malaysia. — Maybank IB Research, June 15
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