Excerpts from Tayrona Financial's report
Analyst: Liu Jinshu
Improving Fundamentals Justify Rerating
▪ Achieved major milestone with mall opening. Capital World opened its flagship Capital 21 mall on 17 October.
We visited the mall and found the crowd to be encouraging with the mall reportedly being packed during its first weekend. Tenants are still moving in, but the tenancy has been said to be around 70%, including space occupied by its theme park. |
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▪ New store openings and Movie Planet to lure crowds in 2019. The mall opening is the latest of recent events in relation to Capital World’s flagship project. 
Capital City is expected to attract more visitors progressively. Photo: TayronaThe mall obtained Certificate of Completion and Compliance in May and opened its doors to visitors to its indoor circus in August.
We envisage that the number of visitors will likely grow as more tenants move in. The launch of the theme park Movie Planet will also draw visitors in 2019.
▪ Successful mall to spur more than RM450m of new sales. Another synergy of opening the mall is that the subsequent increase in human traffic will raise the attractiveness of Phase 2 of Capital City to investors and potentially spur RM450m of new sales for the group.
We estimate the serviced suites and serviced apartments of Phase 2 to have a gross development value of RM455.93m.
▪ Key risks. We are mindful that the group’s current liabilities were more than its current assets as at end FY18. However, part of the group’s liabilities was deferred revenue for billings in advance of work completed and deferred land payments that are tied to the group’s cash flows from sales. These liabilities are not repayable on demand.
On an adjusted basis, the group has positive net current assets of RM95.42m. The mall opening also helps the group to obtain financing, as banks will be more likely to accept operating assets as collateral.
To diversify its risks, the group will also be launching a mass market landed housing project in the growing Pengerang area.
▪ Compelling upside of almost 300%. We value Capital World’s share of the mall and the theme park at RM600.84m or RM891.87 per sq. ft. of net saleable area.  Siow Chien Fu, CEO of Capital World. NextInsight file photoThis valuation represents a steep discount of more than 50% from realized selling prices. Including Phase 2 and profits from the sold units, we value the group at S$211m or S$0.147 per share (enlarged share capital of 1.44 billion shares). Hence, the potential return is significant, excluding upside from the Pengerang project and other projects in the pipeline. The group’s share price fell sharply in 2017 and 2018, which could have been partly due to earlier shareholders selling out amidst poor trading liquidity. With improving fundamentals, we reckon that the group’s share price has bottomed and rate Capital World Overweight with a high return and high average risk view. |
Full report here.
