CapitaLand (CAPL SP) - Maybank Kim Eng 2017-04-26: A Strong Quarter as Expected

CapitaLand (CAPL SP) - Maybank Kim Eng 2017-04-26: A Strong Quarter as Expected CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - A Strong Quarter as Expected


Fairly valued post-strong rally; Maintain HOLD 

  • There was little surprise in the results. The strong performance was expected following its bulk sale at The Nassim. Management remains cautious on the Singapore residential market despite our observations of improving sentiment. 
  • There is better visibility over its future revenue from China with the sequential improvement in unbilled sales. We reiterate our view that CAPL is fairly valued after its strong YTD rally.
  • Maintain HOLD. TP remains unchanged at SGD3.70, based on a 29% discount to RNAV of SGD5.18. 
  • Key risk may stem from overpaying for acquisitions.


Strong boost from The Nassim as expected 

  • 1Q17 was inline at 25% of our full year estimates. Strong performance was driven by the bulk sale of The Nassim. This deal alone contributed SGD161m or 42% of the group’s net profit of SGD387m. 
  • China contributions were stronger with more units handed over. Home sales of 2,062 units (1Q16: 3,377) in China are on track vs its 2017 target of 8,000 units. Unbilled sales improved sequentially to > 6,000 units worth CNY10.5b (4Q16: 5,000 homes worth CNY8.9b). This offers earnings visibility as 60% of the unbilled sales will be recognized over the next three quarters. 
  • CAPL remains on track to meet our ROE forecast of 8% this year.


Remaining cautious on Singapore resi 

  • Contrary to our observations of improving sentiment in Singapore’s residential market, CAPL remains uncertain on the sector’s outlook citing headwinds from property cooling measures. Its exposure to the market remains small at just SGD1.3b or 3% of the group’s total assets. 52% of the 124 units at Marine Blue are now sold following its relaunch.
  • Potential buyer of Asia Square Tower 2 Media reports have cited CAPL as a potential buyer of Asia Tower 2. We believe this is a deal to watch as its outcome may have a material stock impact. Recall that the stock sold down in mid-2015 on concerns that it could overpay for Asia Square Tower 1, but subsequently recovered when it walked away from the deal. While office sentiment has since improved, overpaying for this property is a downside risk to watch.


Swing Factors


Upside

  • Strong rebound in China and Singapore home sales.
  • Monetisation of assets via a sale to its funds under management or third parties.
  • Higher market value of its listed REITs.

Downside

  • Overpaying for assets or land.
  • Poor execution of development projects.
  • Sharp increase in interest rates could hit demand for properties and drive down asset prices




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-04-26
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.700 Same 3.700



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