CapitaLand (CAPL SP) - 4Q16 Profits Rising In The East
- CapitaLand posted better-than-expected results. Overall operating PATMI grew 55% yoy, boosted by contributions from Singapore and China residential projects.
- CapitaLand’s focus remains on core markets Singapore and China, despite management noting headwinds in these markets.
- Expansion of footprint in growth market Vietnam is also likely.
- Maintain BUY and target price of S$4.05, pegged at a 20% discount to our RNAV of S$5.06/share.
Results above expectations.
- 4Q16 PATMI of S$430.5m was up 73.8% yoy as revenue and EBIT clocked growth of 6.5% and 35.9% yoy due to higher contributions from China residential projects and shopping malls. Stripping out exceptionals, 4Q16 operating PATMI grew 16.0% yoy due to a stronger operating performance.
- The results were better than our and consensus expectations, with 2016 core PATMI forming 115% of our full-year forecast.
- Dividend payout of 10 S cents in 2016, up 11% yoy from 2015’s 9 S cents. This represents a payout ratio of 49% at the operating PATMI level.
Divestment gains from The Nassim to be recognised in 1Q17.
- Capitaland divested the 45 remaining units of The Nassim at a cash consideration of S$411.6m in January this year, with divestment gains of S$161m to be recognised in 1Q17.
Highest handover value achieved in China last year.
- 4Q16 saw a 55% yoy increase in handover value to Rmb8.2b, with 6,507 units handed over (+119.8% yoy), leading to higher revenue recognition of pre-sold units. However, 4Q16 China sales value also declined 13% yoy to Rmb3.3b, with 1,562 units sold (-46.3% yoy).
- Management attributed this to a conscious effort in driving sales for 3Q16 and shifting its focus on unit completion in 4Q16 instead.
Healthy residential interest in Singapore.
- 4Q16 saw residential sales value in Singapore increase 18.4% yoy to $174m, with 61 units sold (-34.4%). The quarter’s sales were underpinned by d’Leedon (21 units sold) and The Interlace (12 units sold).
- We note that Singapore residential inventory makes up only about 4% of CapitaLand's total assets.
Management has highlighted interest in replenishing landbank, even while noting that competition for land bids remain stiff
- Less than sanguine outlook on Singapore. Management expects the property cooling measures to remain a drag on the market as they also opine that these measures are unlikely to be lifted this year, amid signs of domestic housing market stabilisation.
- CapitaLand is expected to see about S$3.6m in extension charges due 1H17 from The Interlace (3% unsold) and d'Leedon (4% unsold), which have seen healthy response from the creative “stay then pay” initiative. This programme was also rolled out for Sky Habitat in Jan 17.
- Management also opined that office rentals in Singapore will likely remain depressed in the near term. The retail portfolio is expected to provide stable recurring income to cushion domestic headwinds.
Property cooling measures in China.
- While management acknowledged the likely impact of the measures on residential sales, they opine that their target clientele of first time buyers and up-graders will render such measures less significant.
Remaining focused on core markets Singapore and China.
- Despite noting domestic headwinds in Singapore, the group plans to retain focus on core markets Singapore and China, growth market Vietnam, as well as the serviced residence global platform. They expect 8,430 launch-ready units in China for 2017.
- We note that China and Singapore made up 44% and 36% of total asset value respectively in 4Q16.
Fund management business.
- In October last year, CapitaLand set up a US$1.5b Raffles City China Investment Partners III (RCCIP III) with a fund life of 8 years and a mandate to invest in prime integrated developments within China’s gateway cities.
- We understand that Raffle City Shenzhen (valued at Rmb4.2b as of Dec 16) was injected into RCCIP III. Future injection could include development land and assets under development, apart from completed assets.
- CapitaLand has maintained its 41.7% stake in RCCIP III and the group intends to reach S$10b in AUM by 2020. Plans are underway for the launch of a US$500m commercial fund in Vietnam this year.
- Maintain BUY and target price of S$4.05, pegged at a 20% discount to our revised RNAV of S$5.06/share.
SHARE PRICE CATALYSTS
- Improving sentiment in core markets Singapore and China.
- Relaxation of property cooling measures.