CapitaLand (CAPL SP) - Maybank Kim Eng 2017-08-03: A Solid Print

CapitaLand (CAPL SP) - Maybank Kim Eng 2017-08-03: A Solid Print CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - A Solid Print


Maintain HOLD and SGD3.75 TP 

  • Driven by active portfolio reconstitution and fair value gains, CapitaLand (CAPL) reported a solid 89% increase in headline net profit for 1H17. We deem core earnings as in line. 
  • Strong China performance continues to be the pillar of strength for the group with residential sales and operating statistics at the malls outperforming Singapore. 
  • 1H17 ROE of 5.5% is on track to meet its 8% target this year. With a mere 2% asset exposure to Singapore’s residential market, we believe CAPL is not a proxy to an impending home price rebound in the country. 
  • Maintain HOLD and SGD3.75 TP, based on 29% discount to RNAV of SGD5.25.


Core in line; kicker from divestments and revaluation gains 

  • Headline net profit for 1H17 was a solid 89% YoY increase to SGD966m.
  • Earnings for the period received a kicker from divestment gains with an aggregate bottom line impact of SGD115m, mostly from the sale of Innov Tower in Shanghai. Stripping that out, we deem overall results as in line.
  • CAPL sold SGD2.4b worth of assets and has redeployed SGD2b of the funds released into new acquisitions. It expects to put another SGD1.6b to work for the redevelopment of Golden Shoe. The group recorded total fair value gains of SGD460m in 1H17, of which SGD65m was due to the recent completion of Raffles City Changning, Shenzhen and Hangzhou.


Limited stock in SG residential; disciplined land banking 

  • After years of de-risking its Singapore residential exposure, management highlighted that it is now prepared to be more aggressive in acquiring land in its home market. However, it will remain disciplined in its bids and choice of sites. 
  • Nonetheless, with just SGD1b worth of inventory or a mere 2% of total assets exposed to this market, we believe CAPL is not a proxy to an impending home price rebound.


Strong China showing; ROE on track for 8% target 

  • Its performance in China continues to be the pillar of strength for the group. The sequential uptick in homes sold led to an improvement in unbilled sales of > 8,000 units worth CNY11.7b (1Q17: > 6,000 units worth CNY10.5b). 
  • Malls in China continue to outperform Singapore with tenant sales and NPI growth of 6.2% and 6.8% on a same-mall basis. This compares with flat numbers in Singapore. 
  • Overall, 1H17 ROE stands at 5.5% and is on track to meet its 8% target this year.


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/ 2017-08-03
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.750 Same 3.750



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