CapitaLand - CIMB Research 2015-11-19: Visit to East China

CapitaLand - CIMB Research 2015-11-19: Visit to East China CAPITALAND LIMITED C31.SI 

CapitaLand - Visit to East China 

  • On the ground check show robust activities at CAPL’s properties in East China. 
  • Focus on Tier 1 and major Tier 2 cities, particularly on integrated developments, reconstituting its portfolio and technology platforms should drive ROE. 
  • Residential - tapping on M&As, JVs and onshore funding should optimise returns. 
  • Harnessing technology within the malls and serviced residence businesses should encourage shopper loyalty, broaden market share and enhance brand visibility. 
  • Maintain Add with an unchanged target price of S$4.06. 

Ground checks show robust activity 

  • Our site visit to CAPL’s properties in Shanghai, Hangzhou and Suzhou indicate that on-the-ground activities are still robust. 
  • The group’s China strategy is to deepen its focus in Tier 1 and major Tier 2 cities. To drive ROE improvement in this business segment, it will continue to capitalise on its competitive edge in integrated developments, utilise more technology as well as actively reconstitute its portfolio. 

Focus on driving ROE 

  • Within the China residential business, it would replenish its landbank via M&As and JVs as well as look for urban renewal projects. In addition, it would optimise capital efficiency by enhancing project execution including adopting an integrated approach towards project and cost management. 
  • Financing-wise, it would tap on onshore capital markets to optimise its funding sources and cost. Upping leverage on technology In order for its products to stay relevant, CAPL will harness digital enablers and various technology platforms to enhance its real estate offerings. To this end, its most notable efforts include the Capitastar loyalty programme within its mall business to deepen its understanding of customers’ shopping patterns and encourage shopper stickiness. 
  • The recent tie-up with Ascott and Tujia should also enable its serviced residence business to broaden its product offerings and market share as well as grow its fee income business. 

Room for reconstituting its portfolio 

  • In tandem with its focus on the Tier 1 and major Tier 2 cities, CAPL would look to reconstitute its asset portfolio. 18% of its property portfolio in China is now located in other Tier 2 and Tier 3 cities. As such, we believe that there could be room to rejig its portfolio, unlock and redeploy capital and improve ROE when these activities unfold. 

Maintain Add 

  • The visit reaffirms our confidence in CAPL and the stock remains our top pick in the sector. 
  • The group’s focus on a multi-pronged strategy to enhance performance across its business units should continue to drive ROE. 
  • We maintain our Add call and target price of S$4.06, based on a 35% discount to RNAV.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-11-19
CIMB Securities SGX Stock Analyst Report ADD MAINTAIN ADD 4.06 Same 4.06