CIMB Securities 2015-08-06: Capitaland - 2Q15 Results. Buoyed by one-off gains. Maintain ADD.


Buoyed by one-off gains 

  • Capitaland’s 2QFY15 were helped by higher fair value gains as well as better shopping mall and serviced residence contributions, partly offset by weaker residential earnings while 1H15 net profit came in at only 32% of our FY15 forecast. 
  • We expect a stronger 2H, on higher residential completions in China and steadily rising recurrent income. 
  • With a gearing of 0.53x, it is well placed to tap new growth opportunities, i.e. Vietnam. 
  • While we cut our FY15-17 EPS by 3-14%, we keep our Add call and TP of S$4.06 (20% discount to RNAV). 

Uplift from higher fair value gains 

  • Capitaland reported a 8% rise in topline to S$1.03bn, helped by higher revenue from shopping mall, serviced residence and China residential operations as well as a fair value gain of S$148m from reclassifying a change of use for the Paragon development. 
  • Its PATMI of S$464m (+6% yoy) was also lifted by higher revaluation surplus from investment properties and one-off gain from repurchase of bonds. 
  • Stripping these and other impairments out, its bottomline would have been S$130m for 2Q and S$240m for 1H, accounting for 32% of our full-year forecast. 
  • Apart from lower residential profits from Singapore, China contributions dipped on fewer homes completed during the quarter, 702 (worth Rmb1.03bn) vs. 4,985 units (worth Rmb4.6bn) in 2Q14. 
  • This was partly offset by better performance from the shopping mall business, with tenant sales psf and shopper traffic up 11% and 4.5% yoy respectively. 
  • Serviced residence operations also saw a 1% rise in Revpau. 

FY15 earnings likely to be back-end loaded 

  • We expect earnings to be better in 2H vs. 1H, with a higher scheduled completion of 3,494 units in China, of which 74% has been sold, in addition to steadily growing shopping mall and serviced residence contributions. 
  • A further two malls and Raffles City Changning office tower are expected to be completed in 2H15. 
  • Recent tie-ups between Ascott and QIA as well as its strategic investment in Tujia will enable the group to leverage its management platforms (and increase fee income) and enhance its offerings via technology. 
  • With a gearing of 0.53x, it is well placed to seek new investment opportunities in its core markets of Singapore and China, and its growth markets in Vietnam. 

Maintain Add 

  • We cut our FY15-17 EPS by 3-14% as we stretch out the pace of residential sales and marginally lower our RNAV to S$5.08
  • With 70% of the group’s earnings supported by recurrent income, this will provide Capitaland with a steadily growing base to sustain its long-term ROE targets. 
  • Following the recent share price weakness, the stock offers 28% upside to our RNAV-backed TP of S$4.06.

LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-06
ADD Maintain ADD 4.06 Down 4.08