CapitaLand - Maybank Kim Eng 2015-11-19: East China on the Ground

CapitaLand - Maybank Kim Eng 2015-11-19: East China on the Ground CAPITALAND LIMITED C31.SI 

CapitaLand - East China on the Ground 

  • Visited six projects in Shanghai, Hangzhou and Suzhou. 
  • Expect a record year of sales with 8,000 homes at CNY14b in value. New financing options could lower costs in China. 
  • Maintain BUY and SGD3.88 TP, based on 15% RNAV discount. 

Visited Shanghai, Hangzhou and Suzhou 

  • We visited six CapitaLand projects in Shanghai, Hangzhou and Suzhou (1 residential, 1 serviced apartment and 4 mixed developments) recently. These projects demonstrate the company’s ability to develop projects across a range of sub-asset classes. 
  • We remain positive post-visit and maintain our BUY rating and SGD3.88 TP on the stock. 

Geographical focus, expect record year of home sales 

  • China accounts for 46% of total assets for CapitaLand and is a key market for the group.The company will stay within its area of competency and continue to focus on projects in Tier 1 and upper Tier 2 cities. 
  • Home sales in the country have benefited from a series of policy easing and management now expects a record year of sales with around 8,000 units worth CNY14b in value. 

New funding sources, land banking strategy 

  • The company is exploring options to tap new sources of funding that could lower its financing costs in the country.
  • It prefers to replenish its land bank via M&A or JVs instead of land auctions as land prices have appreciated at a faster pace than home prices. 
  • It would also look to acquire land as a group which would harness its strength as a developer of integrated projects and provide opportunities across sub asset classes. 

Competitive advantages, reiterates ROE target 

  • Management sees its relationships with tenants and customers as a competitive advantage that is hard to replicate. 
  • It reiterated its ROE target of 8-12% and sees double digit returns for its projects in China as a key driver of this target.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-19
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 3.88 Same 3.88