Big Boys Fighting

CapitaMalls Asia

Steady growth in China malls

CMA's mature China malls achieved strong growth in net property income. We

expect income stream from China to stabilise by 2013. It has an estimated S$1bn

acquisition headroom which would be deployed on immediately accretive

brownfield projects. Maintain Buy.

1H11 results outperformed expectations

� �

strong NPI growth in its China malls. CMA recorded a S$143.3m revaluation gain mainly

resulting from high valuation for its malls in Singapore and China. Excluding revaluation

gains, CMA's 1H11 core EBIT stood at S$134.3m (-14% yoy) and was above expectations, at

54% of our FY11 forecasts.CMA reported PATMI of S$214m (+45.7% yoy) in 1H11, thanks to revaluation gains and

� �

divestment of 4 malls in Malaysia and Singapore. Lower profit from the Orchard Residences

also contributed to the decline in core EBIT.The 14% yoy decrease in core EBIT was mainly due to a fall in revenue following its

� �

dividend payout to at least 3.0 cents per share.CMA is declaring an interim dividend of 1.5 cents per share for 1H11, bringing the full year

Steady growth in China malls

� �

gains, the growth was driven by stronger income contribution from its malls. On a same-mall

basis, China malls which are in operation for over a year achieved a 22% net property income

(NPI) growth. This was supported by growths in tenants' sales (+15.2% yoy) and shopper

traffic (+10.4% yoy).CMA's China operations recorded EBIT of S$133.4m (+295% yoy). Apart from revaluation

� �

7.8% (depending on the year of the malls' opening), a significant 23-56% yoy improvement.

We see this as a good indication that the malls in China are growing steadily and this should

translate to higher income contribution going forward.CMA's China malls also saw stellar yield improvement in 1H11. NPI yield on cost was 1.8-

� �

committed. Management expects a healthy 4-5% yield when the mall makes its first full year

income contribution in 2012.CMA opened Minhang Plaza in Shanghai in 2Q11 and 96% of the leases have already been

� �

Acquisitions may be focussed on immediately accretive brownfield projects

� �

for its development projects in Jurong and Bedok. It has an optimal gearing level of 20-30%

and this translates to an acquisition headroom of about S$1bn.As of 2Q11, CMA has a total liquidity of S$2.3bn, of which about S$1bn has been committed

� �

looking to acquire brownfield projects which would be immediately accretive. We see this as a

positive as it hastens income contribution vis-a-vis a greenfield development which typically

are loss-making in the first year of operation due to front-end costs.In China, CMA aims to increase the number of malls to 100 in 3-5 years' time. CMA will be

� �

China malls to fund any lumpy acquisitions. This is because its China malls have better

growth potential. For instance, tenants' sales there grew 15% yoy vs 8% for Singapore malls.We believe that CMA would divest ION Orchard (worth S$1.3bn on its 50% stake) vs its

Maintain Buy, TP S$2.34

� �

progress in generating income from these assets. Also, CMA is looking to do a secondarylisting

in Hong Kong by year end and we believe this will increase investor base and improve

liqudity for the stock.The strong NPI growth in its China portfolio in 1H11 suggests that CMA is making good

� �

S$2.34. The stock is currently trading at an FY11F PB of 0.9x vs its China peer average of

1.1x and Hang Lung's 1.2xWe remain positive on CMA and maintain our Buy rating on the stock with a price target ofManagement targets to open three more malls (17% of NAV in China) in 2H11, bringing the

Earnings before interest and tax (EBIT) were S$212.8 million for 2Q 2011, a 126% increase over the

S$94.0 million for 2Q 2010.– CapitaMalls Asia Limited announced today that it posted profit after tax and

Property Income growth as well as positive revaluations of our malls. In view of our strong performance

in the first half, the Board is pleased to declare an interim dividend1 of 1.5 cents per share.”