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CapitaMalls Asia: Support at $1.83.

Monday, January 31, 2011

CapitaMalls Asia gapped down, tested $1.83 support today and bounced off to close unchanged at $1.87. Although volume is pretty decent, it is lower than the previous session which was a black candle day.  The intra-day high of $1.88 was a many times tested support earlier this month and even if it should be taken out, the next resistance at $1.90 was also a many times tested support. This counter will have to climb a wall of worries, indeed, as supports are now resistance.

Although fundamentally strong, this counter remains technically weak as the MACD has just completed a bearish crossover with the signal line in negative territory. The MFI has also broken the 50% support to trend lower while the RSI is now resisted by the 50% line. Breaking resistance at $1.88 and $1.90 on high volume would give the counter a chance to retest resistance provided by the descending 50dMA.

Since breaking its nascent uptrend after breaking out of its multi-month downtrend, things are looking iffy. I am not adding to my long position until the technicals show that the uptrend is recaptured or a new one is formed.

Related post:
CapitaMalls Asia: Black hammer day.


Anonymous said...

Hello AK

I was looking thru the 2010 third quarter financial statement and I found out that the cash flow from operating activities is (25,441)YTD Sep
2010 compared to (25,441) 42,185 in YTD Sep
2009. And this is probably due to the increase in working capital.

Isn't this a cause for concern regarding the sustainability of CMA to generate cash in the future?


la papillion said...

Hi AK,

I got a chihuahua position from an overnight Q at 1.84. If there is a follow through on Tues to test the resistance (or at least a milder selling off w/o support being broken), things would look fine technically I think.

AK71 said...

Hi B,

Working capital changes are part and parcel of businesses. Of course, if the company is slow in collecting receivables, it would show up as an increase in working capital.

As for payables, the company has probably paid in advance to its vendors. This also reduced its cash generated from operations.

I do not think that these will impact the company negatively. Its ability to generate cash from its operations is not in question.

The line which I am most concerned with is "Operating Profit / (loss) Before Working Capital Changes" which improved from $58.215m (YTD Sep 2009) to $60.073m (YTD Sep 2010).

Let us wait for the full year results to be released on 17 Feb (Thu).

AK71 said...

Hi LP,

Crossing my fingers here. Good luck to us all. ;)

Gerard said...

Noted from the fin rpt that in a REIT manager like CMA, it's NAV is $1.47 vs current share price, n dun think it will change much for FY2010.
Surely this doesnt escape our eyes. However wld u raise ur concern ard this?

AK71 said...

Hi Gerard,

Buying into CMA is somewhat different from buying into a REIT such as CMT which it manages.

CMA is a growth company. I invest in CMA with an eye on future growth and capital gains. As the malls it is building and managing mature and as it offloads these malls to the REITs it manages, the company's value would increase over time.

At a price of $1.90, CMA is only trading at a 30% premium to NAV. If we were to compare this with another REIT manager in the stock market, ARA Asset Management, which has a NAV of 21c and trading at $1.60 or so, can we say that CMA is cheap?

On the other hand, buying into a REIT is like buying a piece of real estate. The yield becomes very important as I am really investing for income.

So, if I pay a much higher price than the NAV, the yield is much lower. An example is CMT which trades at a premium to NAV. I won't invest in CMT for income. I would look at AIMS AMP Capital Industrial REIT instead, for example.

Gerard said...

Thanks for ur response. Ok, so in ur opinion premium to NAV in this case isn't that a big concern. Could u pls share how would one determine fundamentally if this stock at the current price is fairly/over/under valued?
Reason I asked is becos I read books that suggest discount to NAV is probably the top criteria. It was silent whether the criteria shd apply across all industries. Logically in a bear market, most stocks wld fit well or close to it. But otherwise it may be a grey area. So wld like to hear ur views. Hope u understand where I am coming from..

AK71 said...

Hi Gerard,

Every tool in TA or FA is for a specific purpose and together they give us a complete picture.

NAV is basically the net worth of a company. Why should investors be concerned with the NAV of a business? NAV per share tells us roughly how much each share is worth at a point in time as indicated by the balance sheet. Is this important? Well, it is important if we were to liquidate the company and take back our money. Otherwise, I look at it as a crude measure to compare against peers for valuation purposes.

So, for example, I compared it to ARA which is trading at 8x its NAV/share and I asked if CMA is therefore cheap as it is only trading at a 30% premium to its NAV/share. ;)

Do we think CMA would go into liquidation? I should think not. So, I would be forward looking instead.

The values of CMA's assets are likely to increase in time and due to historical cost accounting principle, asset values could be said to be understated. So, CMA's shares should be worth more in time.

You are right about shares trading closer to or even below NAV during bear markets when sentiments are negative. This is because the market would price in the worst case scenarios in bear markets (i.e. companies liquidating).

If you have not seen the presentation slides for the UBS Conference, take a look:

CMA - UBS Conference

This is a growth company and will most probably be worth a lot more in time to come.

Anonymous said...

I don't think it is accurate to compare CMA with ARA. ARA is a pure-play REIT Manager whose ROE has exceeded 35% since listing. CMA on the other hand is a REIT sponsor. the bulk of its earnings will come from its development projects (and not its management revenue).

ARA doesn't need a lot of assets to function. It just need people and an office. CMA on the other hand needs development sites to grow its pipeline of assets. That's why it is nearly impossible for CMA to generate such lofty ROE consistently over a sustained period with zero gearing.

I am not saying ARA is better than CMA - just wish to point out that it isn't accurate to compare them like for like. Thats why their valuation vis a vis NAV is totally different.

Ultimately, CMA is nothing more than a property developer. The main difference is that it has a customer ready to eat its properties at its call. Pretty different from ARA.


AK71 said...

Hi Nick,

I know that it is not accurate to compare CMA and ARA which is why I ended the statement with a question: "can we say that CMA is cheap?"

In a later comment, I said that I use NAV as a "crude" measure to compare against peers.

Why did I use ARA as a comparison? I used ARA really because it was the first company that came to mind due to its commonality with CMA in deriving earnings from REIT management. CMA derives only about a fifth of its EBIT from its REIT management business. So, you are right in that it is quite different from ARA.

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