CapitaLand - Continue To Ride The Rally
- Strong 1Q17 PATMI boosted by sale of The Nassim and portfolio gains.
- New retail mall completions are substantially preleased implying steady step-up in recurring income.
- Ready to pounce on acquisitions to grow its AUM.
Maintain BUY, TP raised to S$4.33.
- We see reason to remain vested in CapitaLand Limited (CAPL) despite the recent run-up in its share price as we see strong catalysts in the medium term to drive prices higher.
- Our target price is raised to S$4.33 on the back of a tighter 10% discount to RNAV.
- We believe that CAPL will see higher valuations on the back of improved property market sentiment which will translate into strong sales.
- In addition, opportunistic asset recycling of mature assets into its listed REITs/funds or any M&A activities, present re-rating opportunities going forward. BUY!
2017 to be a banner year for the group with a strong 1Q17 showing.
- The group’s various business units are expected to deliver strongly in 2017. CAPL's 1Q17 results were strong despite one-off gains. We are seeing an improvement across business divisions.
- Noteworthy is the stable tenant sales across its portfolio, implying a majority of its new retail mall completions (mainly in the Raffles City projects in Shenzhen, Hangzhou and Changning) are substantially pre-leased prior to completion.
- In addition, residential sales should do well given improving property sentiment in Singapore and China.
Ready to pounce on opportunities.
- We believe that it is time for the group to turn more aggressive in replenishing its land bank in these countries. Acknowledging strong competition for land, management is looking at opportunities to acquire land through JVs or mergers & acquisitions (M&A) which will offer the group an alternative and cheaper entry price.
- The group remains keen to build on its recurring income base and we could see acquisitions in that space.
- Our target price of S$4.33 is based on a 10% 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.