STI’s 2012 Best Performer – Why and What’s Next?

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The Straits Times Index has had its ups and downs this year, although it will probably end 2012 solidly in the green (+20.42 percent at the point of writing). And while some component stocks will end the year solidly in positive territory, one component stock has stood out with its meteoric jump (a whopping 70 percent!) in share price this year. That counter is CapitaMalls Asia (CMA).

Source: Factset, chart on STI vs CapitaMalls Asia

Being one of the largest listed shopping mall developers, owners and managers in Asia, CMA has provided investors an avenue to tap into the growing retail clout of the Asian shopper.

Interests Across Asia
CMA has sunk in deep into the retail sector of the region. It has various retail interests in China, India, Japan, Malaysia and finally its home turf, Singapore. Below is a table of current CMA properties and properties that will be becoming operational, correct as at 30 September 2012.

Source: CMA 9M12 Financial report

In its most recent financial report, CMA recorded a 37.6 percent and 44.1 percent jump in revenue and profit respectively. CMA attributed its jump in revenue due to the acquisition of four malls in Japan, while its profit growth was primarily due to one-time gains as well as increased contributions from its associates and joint ventures in particular from properties such as Minhang Plaza and Hongkou Plaza in China. It is thus little wonder that CMA has emerged as the star performer of the STI in 2012.

With the end of 2012 proving to be a very good year for CMA in terms of share price appreciation, what will 2013 bring? Will CMA be able to sustain its growth trajectory? We look into the company’s overall prospects.

FY12 and 2013 Prospects
Globally, the economy has been plagued by developments in the Eurozone debt crisis and the US fiscal cliff budget negotiations. CMA points to a International Monetary Fund forecast of 3.3 percent global growth in 2012 and 3.6 percent global growth in 2013.

A bright spot for CMA’s prospects comes from China which experienced a 14.9 percent jump in retail sales for the month of November. The growth rate comes as urban consumption expanded 15 percent, which further adds to the values of CMA’s malls in urban China.

Directly across the sea from China, Japan’s slip into technical recession bode ill news for retail sales as figures showed an October fall of 1.2 percent. However, with the recent general election win, newly installed prime minister, Shinzo Abe is expected to push the Bank of Japan to expand monetary policy. This development could have an effect on Japan’s recovery from technical recession and to a large extent, its retail sales.

In Malaysia, CMA can look forward to strong private investment and robust domestic demand. Retail sales are expected to hit 6 percent in 2012 and could continue on its growth trajectory as Malaysia welcomes a period of strong economic growth in 2013.

Not so good however, was Singapore’s retail sales figure for October 2012. Excluding motor vehicles, retail sales inched up 1.3 percent, signaling possible holdback in retail purchases by consumers as uncertainty about the global economic environment continue unabated.

Taken into totality, it would seem that CMA’s fortunes are largely tied to Singapore and China due to its mall exposure in both countries. However, its growing portfolio in China amidst a backdrop of favourable retail numbers there could provide the impetus CMA needs to tide through a possibly tumultuous 2013.

Author’s note:
Have any thoughts/comments or feedback regarding this article? Reach out to me on my twitter account, @Tradeable . I will also discuss and tweet about various other investment and economic related news in Singapore and beyond, there.

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