CapitaLand - Strong 4Q16
- FY16 core net profit exceeded our estimate on the back of higher-than-expected China residential profits.
- China residential handover and profit from sale of The Nassim to boost FY17F earnings.
- Bulk sale of The Nassim resulted in a S$161m gain.
- Strong balance sheet and low gearing to underpin capital deployment into new investment opportunities.
- Maintain Add with a slightly higher TP of S$4.19.
FY16 results beat expectations
- CAPL reported 4Q16 revenue of S$1.85bn (+6.5% yoy) while net profit came in at S$430.5m (+74% yoy).
- Stripping out revaluations and one-off items, 4Q/FY16 net profit was S$S$289.1m/S$834.8m, up 16%/28% yoy.
- FY16 core earnings beat our forecast by 17%, driven by better-than-projected performance from China residential, higher rental, and serviced residence income. Accordingly, ROE rose to 6.6% from 6.1% in FY15.
- The group proposed a higher DPS of 10 Scts for FY16, translating to a yield of 2.9%.
Strong China residential handover lifts bottomline
- In 4Q16, CAPL handed over 6,507 residential units valued at Rmb8.2bn in China, taking full-year recognition in China to c.Rmb16bn. The units were from projects including One iPark, La Botanica and The Metropolis in Kunshan. It has >5,000 units remaining, sold at a value of Rmb8.9bn, to be handed over from FY17 onwards.
- In terms of launches, it has a further 8,000 launch-ready units for FY17, of which c.20% are in Tier 1 cities.
Strong rental and serviced residence contributions
- FY16 operating EBIT for CMA/Ascott rose 2.4%/3.8% yoy as operating metrics improved with tenant sales growth up 10.2% in China and 2.6% in Singapore.
- Another 1m sqm GFA of new space (c.10% of total portfolio) is scheduled to complete over FY17 - in China, Malaysia and India, including three Raffles City malls. Once the properties stabilise, we anticipate the additional rental to boost recurring profit in the medium term.
Gain from The Nassim to be felt in 1Q17F
- In Singapore, CAPL sold 571 residential units worth S$1.4bn, mainly from d’Leedon, Sky Vue, Cairnhill Nine and Victoria Park Villas. The group also recycled capital from The Nassim development through a bulk sale for the remaining 45 units to Kheng Leong Company for S$411.6m.
- We expect S$161m gain to be recognised in 1Q17.
FY17F net profit likely to be boosted by China residential
- We expect FY17 to continue to be supported by strong China residential handovers as well as the gain from The Nassim sale.
- Given its low gearing of 0.41x, we expect CAPL to continue redeploying capital into new investments, particularly in core markets such as China. It is on track to grow its assets under management (AUM) to S$10bn by 2020.
- We adjust our FY17F EPS to factor in the S$161m gain from selling its entire stake in The Nassim and lift our FY18F EPS to factor in stronger rental income growth from newly completed properties.
- Accordingly, our RNAV rises to S$5.23. Our TP of S$4.19 is based on a 20% discount to RNAV.
- Continued reinvestment into new RNAV-accretive projects is a key potential re-rating catalyst.
- Downside risks include slower-than-expected deployment of capital.