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Table of Contents

Company Valuation Report: CapitalMall Trust - Part 2

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1.3 Analyzing Financial Performance and Peer Comparison

In order to conduct the financial performance of the company we will be using the help of ratio analysis so as to understand the real financial position of the company. In addition to it, we shall also compare the financial performance with one of the core competitors of the company, i.e., Kepel REIT. Before conducting the ratio analysis , it will be useful for us to have a look over the financial statements of both the companies:

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CapitalMall Trust Balance Sheet:

CAPITAMALL TRUST BALANCE SHEET        
Fiscal year ends in December. 2009 2010 2011 2012
Assets        
Real estate properties   5 4 2
Accumulated depreciation   -3 -3  
Real estate properties, net 2 2 2 2
Cash and cash equivalents 351 713 758 1118
Other assets 7070 7411 8413 8768
Total assets 7423 8126 9172 9889
Liabilities and stockholders' equity        
Liabilities        
Short-term borrowing 440 927 782 405
Long-term debt 1767 1925 2641 3162
Other liabilities 247 335 502 618
Total liabilities 2453 3187 3926 4186
Stockholders' equity        
Accumulated other comprehensive income 4970 4939 5246 5703
Total stockholders' equity 4970 4939 5246 5703
Total liabilities and stockholders' equity 7423 8126 9172 9889

CapitalMall Trust Income Statement:

CAPITAMALL TRUST INCOME STATEMENT        
Fiscal year ends in December. 2009 2010 2011 2012
Revenue 553 581 631 662
Expenses        
Operating expenses 176 180 320 216
Sales, General and administrative 39 39 42 48
Total expenses 215 219 362 265
Operating income 338 362 268 397
Interest income       7
Interest expenses 105 118   139
Other income (expense) -296 27 116 270
Income before income taxes -63 270 384 534
Provision for income taxes 2   0 -2
Other income        
Net income from continuing operations -65 270 384 536
Net income -65 270 384 536
Net income available to common shareholders -65 270 384 536
Earnings per share        
Basic -0.02 0.08 0.12 0.04
Diluted -0.02 0.08 0.12 0.04
Weighted average shares outstanding        
Basic 2921 3182 3206 3567
Diluted 3112 3367 3426 3567
EBITDA 43 390 270 675

CapitalMall Trust Cash Flow Statement:

CAPITAMALL TRUST Statement of  CASH FLOW        
Fiscal year ends in December. 2009 2010 2011 2012
Cash Flows From Operating Activities        
Inventory 0 0 0 0
Other working capital 5 17 0 56
Other non-cash items 351 366 381 404
Net cash provided by operating activities 356 383 381 459
Cash Flows From Investing Activities        
Investments in property, plant, and equipment -66 -323 -597 -1
Property, plant, and equipment reductions 0 0 0 0
Acquisitions, net       15
Sales/Maturities of investments       118
Other investing activities 11 12 -119 -250
Net cash used for investing activities -54 -311 -716 -119
Cash Flows From Financing Activities        
Debt issued 18 1214 1246 1163
Debt repayment -991 -545 -695 -956
Common stock issued 1232   250 250
Cash dividends paid -266 -295 -300 -312
Other financing activities -127 -69 -121 -126
Net cash provided by (used for) financing activities -134 305 380 20
Net change in cash 167 377 45 361
Cash at beginning of period 168 336 713 758
Cash at end of period 336 713 758 1118
Free Cash Flow        
Operating cash flow 356 383 381 459
Capital expenditure -66 -323 -597 -258
Free cash flow 290 60 -216 202

 

Kepel REIT Balance Sheet:

KEPPEL REIT BALANCE SHEET        
Fiscal year ends in December. 2009 2010 2011 2012
Assets        
Real estate properties, net     0 0
Cash and cash equivalents 576 50 86 102
Intangible assets 33 37 138 92
Other assets 2023 3029 5633 5945
Total assets 2632 3116 5857 6139
Liabilities and stockholders' equity        
Liabilities        
Short-term borrowing     511 155
Long-term debt 579 990 1683 2268
Other liabilities 50 70 188 251
Total liabilities 629 1060 2381 2674
Stockholders' equity        
Common stock       2772
Retained earnings       723
Accumulated other comprehensive income 2003 2056 3475 -29
Total stockholders' equity 2003 2056 3475 3466
Total liabilities and stockholders' equity 2632 3116 5857 6139

 Kepel REIT Income Statement:

KEPPEL REIT INCOME STATEMENT        
Fiscal year ends in December 2009 2010 2011 2012
Revenue 63 85 78 157
Expenses        
Operating expenses 22 30 27 -65
Sales, General and administrative 13     44
Total expenses 35 30 27 -22
Operating income 28 55 51 179
Interest income     23  
Interest expenses       46
Other income (expense) -72 58 229 215
Income before income taxes -44 113 302 348
Provision for income taxes 2 3 6 15
Other income     -6  
Net income from continuing operations -46 109 290 333
Other     6  
Net income -46 109 296 333
Other distributions     6 3
Net income available to common shareholders -46 109 290 330
Earnings per share        
Basic -0.06 0.08 0.2 0.13
Diluted -0.06 0.08 0.2 0.13
Weighted average shares outstanding        
Basic 811 1341 1421 2591
Diluted 811 1341 1421 2591
EBITDA 54 77 87 458

 

Kepel REIT Cash Flow Statement:

KEPPEL REIT Statement of CASH FLOW        
Fiscal year ends in December. 2009 2010 2011 2012
Cash Flows From Operating Activities        
Investments losses (gains)   -26    
Other working capital -16 -36 -49 -23
Other non-cash items 71 98 87 100
Net cash provided by operating activities 55 35 38 77
Cash Flows From Investing Activities        
Investments in property, plant, and equipment   -1 -1  
Property, plant, and equipment reductions   571    
Acquisitions, net   -1380 -1601 -79
Purchases of investments -108 -377 -119 -5
Sales/Maturities of investments 4 300    
Purchases of intangibles   -27 -7  
Other investing activities 45 47 107 163
Net cash used for investing activities -59 -868 -1622 79
Cash Flows From Financing Activities        
Debt issued 100 993 767 260
Debt repayment -100 -585 -4  
Cash dividends paid -66 -77 -96 -212
Other financing activities 602 -25 953 -188
Net cash provided by (used for) financing activities 536 307 1620 -139
Effect of exchange rate changes       -1
Net change in cash 532 -526 36 16
Cash at beginning of period 44 576 50 86
Cash at end of period 576 50 86 102
Free Cash Flow        
Operating cash flow 55 35 38 77
Capital expenditure   -28 -9  
Free cash flow   8 29  

Ratio Analysis

a) Liquidity Analysis:

These ratios indicates the ability of an entity to honor its short term obligations. Also known as pure balance sheet ratios, they help us in having an inside view of the working capital of the company.

i) Current Ratio: Current Assets/ Current Liabilities

Current Ratio 2009 2010 2011 2012
CMT 0.62 0.65 0.76 1.63

 

Current Ratio 2009 2010 2011 2012
CMT 0.62 0.65 0.76 1.63
Kepel REIT 17.67 1.3 0.18 0.43

** Since REIT do not manufacture or purchase any sort of inventory, there is no point of calculating their Quick Ratio

b) Profitability Analysis:

One of the most important ratios for the analyst and the investors of the company as it helps in understanding the profit margins being earned by the company.

i) Net Profit Margins: Net profit/ Revenues*100

2009 2010 2011 2012
CMT -11.79 46.47 60.93 81.07

 Net Profit Margin 2009 2010 2011 2012
CMT -11.79 46.47 60.93 81.07
Kepel REIT -73.11 129.18 372.04 210.16

II) Return on Equity: Net Income/ Total Equity*100

ROE 2009 2010 2011 2012
CMT -1.44 5.45 7.54 9.8

 

2009 2010 2011 2012
CMT -1.44 5.45 7.54 9.8
Kepel REIT -2.63 5.38 10.49 9.5

c) Solvency Ratios:

These ratios are used to judge the long term solvency of the company and also to adjudge the level of financial solvency in the company.

i) Debt Equity Ratio: Debt/ Equity

2009 2010 2011 2012
CMT 0.36 0.39 0.5 0.55

2009 2010 2011 2012
CMT 0.36 0.39 0.5 0.55
Kepel REIT 0.29 0.48 0.48 0.65

 

Analysis: Capital Mall Trust

Our above analysis for CapitalMall Trust indicates that over the years the company has improved its financial stability as displayed by the whole set of financial ratios. As for the liquidity analysis of the company, the current ratio of the company has improved year over year. By the end of 2012, the current ratio of the company stood at 1.63. Similarly, in the profitability section, the net profit margin of the company after the financial crisis of 2008 has improved significantly over the years. While during 2009, the Net Profit Margin of the company was -11.80% to 81% during 2012. Even the shareholders of the company will be ecstatic to see increasing return on equity. Over the years, the ROE of the company has increased from -1.44% to 9.8%

1.4 Peer Comparison: CapitaMall Trust v/s Keppel REIT

In order to facilitate the peer comparison, we have conducted the ratio analysis of CapitalMall Trust’s core competitor in REIT Industry, i.e. Kepel REIT. The comparison between both the companies can be seen in the ratio analysis section so conducted above.

Referring to the above ratio comparison and graphs drawn we can infer that while CapitalMall Trust has been consistently growing with its financial stability, Kepel REIT has not been consistent in its performance. For instance, referring to the liquidity analysis of both the companies, while CMT has been successful in maintaining a health current ratio, Kepel REIT has saw a significant decline its Current ratio decreasing from 17(2009) to 0.43(2013)

The same scenario goes with the profitability analysis of both the companies. Although, post the global financial crisis years, i.e. the one beginning from 2009, both the companies managed to maintain high profitability rates but with passage of time, while CMT has been consistently and sustainably increasing its Net Profit Margins from 60.93%(2011) to 81.3%(2012), Keppel REIT saw a significant decline in its net profit margin during the same year of comparison from 372% to 210%.

1.4.1 Peer Stock Performance Comparison

  • Yellow Line= Capital Mall Trust
  • Blue Line= Kepel REIT

1.5 Dupont Analysis

The three step Dupont Calculation:

DuPont Return on Equity model consists of three components to the calculation of return of equity; net profit margin, asset turnover and financial leverage multiplier.

Net profit margin is the calculation of after-tax profit generated from a company’s revenue by dividing net income over sales. Although net profit margin may vary across different industries, a higher net profit margin is generally more preferable.

Asset turnover ratio, on the other hand, is the measure of a company’s effectiveness in converting its assets into sales, which can be calculated by the division of sales over total assets. However, asset turnover ratio tends to be inversely related to net profit margin. In other words, the lower the net profit margin, the higher the asset turnover ratio. Thus, a low asset turnover ratio would be preferred.

Financial leverage multiplier, also known as equity multiplier, is the calculation of a company’s leverage on debts to artificially increase its return on equity. Equity multiplier enables the possibility for a company with poor sales and margins to uptake excessive debts in order to allow investors to see the portion of equity obtained from the result of debt. Financial leverage multiplier can be calculated by dividing total assets over shareholders’ equity.

3-Point DuPont Analysis-CapitalMall Trust

  Capitalmall Trust
  2009 2010 2011 2012
Profit -65,000,000 270,000,000 384,000,000 534,000,000
Sales 553,000,000 581,000,000 631,000,000  662,000,000
Assets 7423,000,000 8126,000,000 9172,000,000 9889,000,000
Equity 4970,000,000 4939,000,000 5246,000,000 5703,000,000
Profitability = Profit Margin -11.75% 46.47% 60.85% 80.66%
Productivity = Asset Turnover 0.0744 0.071 0.068 0.066
Capital Structure = Financial Leverage 1.49 1.64 1.74 1.73
ROE -1.31% 5.42% 7.20% 9.21%

The five step Dupont Calculation:

The five step Du-Pont Analysis is the extension to the three-step model. Under this method, net profit margin is expanded further with the inclusion of the tax effect in the Du Pont Equation. The 5-step equation builds with further extension of Net profit margin by changing the net profits into Earning before tax* (1-tax rate). Thus, ROE is transformed into:

ROE = (EBT/Sales)* (Sales/Assets)* (Assets/Equity)*(1-tax rate)

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Further breaking the Earnings before taxes into Earnings before interest and taxes minus the company’s interest expense. So by substitution, the ROE is transformed into:

ROE = [(EBIT/Sales)*) (Sales/Assets)* - (interest expense/assets]* (Assets/Equity)*(1-tax rate)

Or;

ROE= [(operating profit margin)*(asset turnover)-(interest expense rate)]* (equity multiplier)* (tax retention rate)

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