CapitaLand (CAPL SP) - Maybank Kim Eng 2017-11-08: On Track On Target

CapitaLand (CAPL SP) - Maybank Kim Eng 2017-11-08: On Track On Target CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - On Track On Target


No surprises; maintain HOLD 

  • CapitaLand's 9M17 EPS is in line, at 82% of our full-year forecast. 
  • Fewer homes were sold in Singapore and China due to limited saleable resources. Nonetheless, earnings visibility has improved with higher unbilled sales in China. 
  • We raise RNAV by 2cts to SGD5.27 after updating market values and TPs for its listed entities. We expect CAPL to achieve its 8% ROE target this year. 
  • Still, maintain HOLD as we see valuation as fair. Our SGD3.75 TP remains based on a 30% discount to RNAV. 
  • Prefer UOL (UOL SP, Rating: BUY, Target Price: SGD9.80, see report: UOL Group Ltd - Latest Salvo ~ Nanak Mansions) for sector exposure.


Fair-value & portfolio gains a boost 

  • 3Q17 net profit was up 28% YoY to SGD317m. Results were boosted by portfolio and fair-value gains of SGD119m and SGD116m respectively.
  • With limited saleable resources in Singapore, it sold only 108 units worth SGD373m, down from 3Q16’s 206 homes worth SGD525m. It also sold fewer homes in China: 2,087 worth CNY4.3b vs 3Q16’s 2,903 worth CNY5.8b. Handover slowed as well. 
  • Nonetheless, earnings visibility has improved with higher unbilled sales of CNY13.8b from 8,000 units sold vs 2Q17’s CNY11.7b, also from 8,000 units. Tenant sales growth and same-mall NPI in China were strong at 18% and 8% respectively in 9M17.


Consolidating CMT, CRCT & RCS Trust 

  • With its stake in CapitaLand Mall Trust (CT SP, Not Rated) crossing 30% after collecting management fees in units, CapitaLand assessed that it now has control over CapitaLand Mall Trust, CapitaLand Retail China Trust (CRCT SP, Not Rated) and RCS Trust. It has hence consolidated their earnings from Aug 2017. 
  • Re-measurement gains from this added SGD12m to its net profit. The two months of consolidation contributed SGD169m and SGD115m to its revenue and EBIT respectively.


ROE to hit 8% this year; what next? 

  • With 9M17’s performance, we expect CAPL to achieve its ROE target of 8% this year. Capital deployment over the next few years should decide ROE sustainability. Successful participation in a new master-developer concept to be introduced by the Singapore government could move the needle.


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/ 2017-11-08
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.750 Same 3.750



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