Capitaland - Fortunes turning up
- Robust set of FY16F results ahead of projections, driven by China residential segment.
- Dividend sweetener, up 10% y-o-y which is projected to remain stable.
- BUY with revised TP of S$3.85.
Improving earnings quality.
- Despite the recent run-up in share price, we continue to see good value in CapitaLand Limited (CAPL), trading at an attractive 0.8x P/NAV and 0.7x P/RNAV.
- Our raised TP of S$3.85 now ascribes a 20% discount to RNAV (vs 25% before) given the projected completion of major projects in 2017 which will lift NAVs upwards.
- Coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, we see re-rating opportunities going forward. BUY!
Robust set of 2016 results coupled with a dividend sweetener.
- FY16 Operating PATMI up 28% y-o-y to S$834.8m, or 84% of streets’ FY16 estimates, led by 10% growth in revenue (handover of units almost doubled y-o-y in China and 39% growth in revenue from Ascott with contributions from Cairnhill Nine project and full-year contribution from properties acquired in 2015).
- CapitaLand increased its dividends by 1 Sct to 10 Scts/share; dividend payout was stable at ~36%.
- Sustainability of payout is key and we believe the group will continue paying 10 Scts a share come 2017-2018.
2017 to be a banner year for the group.
- The group’s various business units are expected to deliver strongly in 2017.
- Noteworthy are
- S$161m in one-off gains to be recorded in 1Q17 post the bulk-sale of The Nassim in Singapore,
- launching of 7,000 units in 2017 in China which will add to the un-recognised amount of RMB8.9bn in sales, and
- the completion of close to 1 million sqm of retail GFA through the year which is expected to contribute significantly to recurring revenues.
- Our target price of S$3.85 is based on a 20% discount to our adjusted RNAV of S$4.81/share.
Key Risks to Our View
- Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption.