CapitaLand - CIMB Research 2016-02-18: Focused execution

CAPITALAND LIMITED C31.SI

CapitaLand - Focused execution

Higher operating PATMI due to improved China residential and Ascott performance.
High handover rate in China and consolidation of township revenue underpin profits.
Medium-term focus on core Singapore and China as well as expanding into Vietnam to drive earnings expansion.

Completion of China malls and Raffles City projects should accelerate mid-term rental income growth.
Maintain Add with a target price of S$4.05.

CAPL reported 4Q and FY15 net profit of S$247.7m and S$1.06bn, -40% and -8% yoy, respectively, and largely in line with our estimates.
Excluding fair value and other gains and excluding profit from the sale of Westgate Tower in FY14, operating PATMI would have been S$653m, up 12% yoy. This was despite taking S$193m (FY14: S$161m) of impairment losses for Singapore residential and two China developments in Tianjin and Chengdu.
The group proposed a 9 Scts final DPS, translating into a yield of 3.1%.

The better performance in FY15 came from higher China residential profits, consolidation of CAPL township revenue and better performance in Ascott and China malls. It handed over Rmb10bn worth of residential units in FY15, of which c.52% was delivered in 4Q.
Ascott also enjoyed higher fee income and contributions from new acquisitions in FY14 and FY15, and a 1% portfolio Revpau hike.
China malls still see higher, although moderated, tenant sales of 7.5% and shopper traffic growth of 3.2%.

Going forward, CAPL remains focused on growth in its core markets of Singapore and China, and continues to diversify and balance its portfolio with expansion plans in Vietnam and Indonesia.
In Singapore, its three residential projects will be launch ready in 1H16 and it will have to time its roll-out. Ascott will also continue to evolve into a global platform with an expanded network target of 80,000 units by 2020.
In Vietnam, it sold 1,321 units in FY15 and has continued to replenish its landbank.

In China, it has 7,000 units that are launch ready and a scheduled completion of 9,000 units in FY16. This will underpin earnings within this segment.
Meanwhile, the gradual completion of two new malls in China and India and Raffles City projects in Changning, Hangzhou and Shenzhen between 2016 and 2017 will drive medium-term rental income growth. The latter are larger in size and the gradual completion and leasing of these should result in accelerated growth in recurrent income over the next 2-3 years.

We cut our FY16 estimates by 1.9% and FY17 by 15.7% on a slower residential sale and recognition pace.
We maintain our Add rating with a slightly reduced RNAV-backed target price of S$4.05.
CAPL is trading at 0.7x P/BV and a 44% discount to our RNAV.
With more than 75% of its earnings derived from recurring sources, the group is on track to deliver its target ROE of 8-12% in the medium term.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-02-18

CIMB Securities SGX Stock Analyst Report ADD MAINTAIN ADD 4.05 Down 4.06