CAPITALAND LIMITED
C31.SI
CapitaLand (CAPL SP) - 2Q17 Prudent Aggression
- CapitaLand's 2Q17 results were in line with expectations. Management expects property cooling measures to continue to depress the residential market, though acknowledging liquidity-driven pick-up in transaction volumes.
- Management re-iterated their “prudently aggressive” approach in sourcing for well-located sites.
- CapitaLand’s focus remains on the core markets of Singapore and China, but its presence in Vietnam will continue to grow.
- Maintain BUY and target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.
RESULTS
- CapitaLand's 2Q17 results in line with expectations. Top-line 2Q17 operating PATMI grew 20.5% yoy to 206.8m and EBIT grew 67.1% to 987.8m.
- The growth was attributable to better overall operating performance, greater revaluation gains in Singapore and China as well as portfolio gains from divestments in China and Japan. However, revenue declined 12.3% yoy to S$992.4m due to lower contributions from development projects in Singapore.
- Excluding the one-off S$160.9m gain from The Nassim sale, 1H17 operating PATMI was in line with expectations, representing 51.9% of full-year estimates.
STOCK IMPACT
Stable residential interest in Singapore.
- 1H17 saw residential sales value in Singapore grow 8.7% yoy to $778m, with 185 units sold (inclusive of The Nassim sales). The gross number of residential units sold in 1H17 declined from 304 to 185 yoy.
- Newly-launched projects in Singapore saw strong demand with 95% of units sold. Marine Blue and Sky Habitat, however, had 57% and 81% of units sold respectively, despite 100% completion.
Residential outlook in Singapore.
- Management expects property cooling measures to continue to depress the residential market, though acknowledging liquidity-driven pickup in transaction volumes. Management has re-iterated their “prudently aggressive” approach and will continue to source well-located sites.
Chinese residential outlook.
- As the group markets properties to first-time buyers and upgraders, property cooling measures have begun to impact average residential prices and transacted volumes. However, management believes that the policy measures will have a limited effect on sales.
Higher handover value in China and promising performance.
- 1H17 saw a 98.7% yoy increase in handover value to RMB 6.05b, due to higher ASP. Recall that for China developments, revenue is recognised on completion basis upon handover of units to home buyers.
- Given over 8,000 units of Chinese residential property were sold at a value of Rmb11.7b, approximately Rmb2.34b of handover value is expected to be recognised in 2H17.
High committed occupancies at Raffles City developments in China.
- Occupancies for the retail sections of the Raffles City developments were strong at over 99% occupancy in all cities, which include Shanghai, Beijing, Chengdu, Ningbo, Changning, Shenzhen and Hangzhou.
- Occupancies were weaker in Changning, Shenzhen and Hangzhou at 82%, 38% and 52%, respectively.
Stable RevPAU for serviced residences.
- Total RevPAU for 1H17 dipped slightly by 1% yoy, but would have grown 1% yoy on a local currency basis. The Gulf Region & India and Singapore saw the sharpest decline with 1H17 RevPAU declining by 8% and 7% yoy, respectively.
- Those declines were dampened by the 5% yoy RevPAU growth in North Asia (ex-China) for 1H17.
Resilience of the Ascott model.
- Management re-iterated Ascott’s role in bracing market volatilities given its inherent flexibility.
- Since its business model allows for growth through franchise and management contract models, Management will leverage on Ascott’s global serviced residence platform and envision a business model that will able to endure market uncertainties.
Focus markets.
- Management seeks to deepen its footprint in the core markets of Singapore and China, but will look to expand further in Vietnam and, potentially, Japan.
- Management have indicated that they are comfortable with increasing their exposure to China from 43% to around 50% and are likely to be more aggressive in Vietnam.
- Management have alluded that their expansion to Japan will not be as aggressive and that they will focus on the greater Tokyo area.
VALUATION/RECOMMENDATION
- Maintain BUY and target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.
EARNINGS REVISION
- We retain our estimates.
SHARE PRICE CATALYSTS
- Improving sentiment in core markets Singapore and China.
- Relaxation of property cooling measures.
Vikrant Pandey
UOB Kay Hian
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http://research.uobkayhian.com/
2017-08-04
UOB Kay Hian
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