CapitaLand (CAPL SP) - UOB Kay Hian 2017-04-27: 1Q17 Changing Of The Guard

CapitaLand (CAPL SP) - UOB Kay Hian 2017-04-27: 1Q17 Changing Of The Guard CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - 1Q17 Changing Of The Guard

  • CapitaLand posted better-than-expected results. 
  • Overall operating PATMI grew 55% yoy, boosted by divestment gains from the bulk sale of 45 units at The Nassim.
  • CapitaLand also announced a shuffle in key management. CapitaLand’s focus remains on core markets Singapore and China, despite management noting headwinds in these markets. 
  • Maintain BUY and target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.



RESULTS


Results above expectations. 

  • 1Q17 PATMI of S$386.8m was up 77.2% yoy, while revenue and EBIT clocked growth of 0.4% and 35.0% yoy due to higher contributions from China residential projects and shopping malls. 
  • 1Q17 EBIT growth outpaced revenue growth, primarily due to sales of units at the Nassim, gains from its China developments as well as portfolio gains. Stripping out exceptionals, 1Q17 operating PATMI grew 121.1% yoy primarily due to recognition of gains from the sale of 45 units at the Nassim. 
  • The results were above expectations, with 1Q17 core PATMI forming 46% of full-year forecast.

Change in key management. 

  • CAPL announced the day before a series of key appointments that will take effect from 1 May 17. 
    • Wen Khai Meng, CEO of CAPL's Singapore division will assume the role of Senior Advisor, Group strategy. 
    • Succeeding Mr Wen is Ronald Tay, current CEO of Ascott Residence Trust. Mr Tay will be succeeded by ART’s deputy CEO Beh Siew Kim. 
    • Wilson Tan from CapitaLand Mall Trust will assume the role of Deputy CEO of CapitaLand Mall Asia. 
    • Wilson Tan will be replaced as CEO of CMT by Tony Tan, the former CEO of CapitaLand China Retail Trust.

Healthy residential interest in Singapore. 

  • 1Q17 saw residential sales value in Singapore dip 1.8% yoy to $497m, with 83 units sold (inclusive of The Nassim sales). The launch of Marine Blue (priced S$1.4m - S$1.7m) was well-received, with about 28 units sold in Jan – Apr this year. The project is now 52% sold. 
  • Management has highlighted interest in replenishing landbank, even while noting that competition for land bids remain stiff.


STOCK IMPACT


China residential performance. 

  • 1Q17 saw a 168% yoy increase in handover value to Rmb2.9b, due to higher completion of units. 
  • Recall that for China developments, revenue is recognised on completion basis upon handover of units to home buyers. However, 1Q17 sales value declined 16.1% yoy to Rmb3.8b (2,062 units sold), on the back of lower available units for sale.

Property cooling measures in China. 

  • While management has observed the nascent impact felt by the residential market and land prices, they opine that their target clientele of first-time buyers and up-graders will render such measures less significant.

Less-than-sanguine outlook on Singapore. 

  • Management expects the property cooling measures to remain a drag on the market, and also opines that these measures are unlikely to be lifted this year, amid signs of domestic housing market stabilisation.
  • CapitaLand is expected to see about S$3.2m in extension charges due 1H17 from The Interlace (3.1% unsold) and d'Leedon (3.4% 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 and occupancy in Singapore will likely remain depressed in the near term. The retail portfolio is expected to provide stable recurring income to cushion domestic headwinds.

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 6,974 launch-ready units in China for 2017. 
  • We note that China and Singapore make up 44% and 35% of total asset value respectively in 1Q17.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of S$4.30, pegged at a 15% discount to our revised RNAV of S$5.06/share.


EARNINGS REVISION

  • We have raised FY17 earnings by 22% to S$888.3m mainly factoring the Nassim Residences sale.


SHARE PRICE CATALYSTS

  • Improving sentiment in core markets Singapore and China.
  • Relaxation of property cooling measures.




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-27
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.300 Same 4.300



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