Oct 31, 2011

CapitaMalls Malaysia Trust

CapitaMalls Malaysia Trust Stock Code 5180 REIT

capitamalls

CMMT will be raising RM330m via the private placement of 261.9m new units at issue price of RM1.26.  The quantum of equity fund raised exceeded our expectation as it implies that East Coast Mall will be 100% funded by equity which will result in larger than expected EPU dilution. FY11-13 earnings will be cut by between 3.6% and 7.5%. On the flipside, gearing will be lowered which allows more flexibility for CMMT to pursue further acquisitions. Maintain BUY as we continue to like CMMT for its exposure to retail investment properties which we believe is resilient.

News
  CMMT announced last Friday that it has fixed the issue price of private placement of 261.9m new units at RM1.26 per unit which will raise gross proceeds of RM330m.

Comments
  Recall that CMMT has on 15 June 2011 proposed to acquire East Coast Mall for RM330m. It has also proposed to issue new units via a private placement in order to fund the acquisition of East Coast Mall.
  The quantum of equity fund raised exceeded our expectation as it implies that East Coast Mall will be 100% funded by equity.
  The issue size represents 17.5% of existing number of units in circulation while the issue price of RM1.26 represents a 3.8% discount to last traded price of RM1.31.
  While the larger than expected issue size of the private placement will reduce gearing and borrowing cost, these will not be sufficient to mitigate the effect of equity dilution.
  Post private placement, the debt/total asset ratio will decline from 33% as of 30 Sep 2011 to approximately 30%. 

Impact on earnings estimates
  While FY12 and FY13 net profits will be raised by 5.2% and 4.8% respectively due to lower interest expense, earnings per unit (EPU) for FY11-13 will be cut between 3.6% and 7.5% as the effect of dilution outweighs savings on interest expense. 

Impact on valuation and recommendation
  We maintain our BUY call as we continue to like CMMT for its exposure to retail investment properties which we believe is resilient.
  However, our DDM-derived target price has been lowered from RM1.50 to RM1.43. At our target price, FY12 distribution yield will be 5.3%.

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