CapitaLand - Maybank Kim Eng 2016-01-13: China Holds the Key

CapitaLand - Maybank Kim Eng 2016-01-13: China Holds the Key CAPITALAND LIMITED C31.SI 

CapitaLand (CAPL SP) - China Holds the Key 

Maintain BUY, new TP of SGD3.71 

  • We update our valuation for the group and incorporate updated analysis and fair-value gains for its projects in China. 
  • We now apply varying discounts to its sub-segments in our RNAV, which is revised from SGD4.56 to SGD4.77. This lowers our TP to SGD3.71 from SGD3.88
  • Our RNAV incorporates TPs for its listed REITs and market values for units not covered. It implies 0.9x P/BV or -0.4SD from its 10-year average. 
  • Maintain BUY with catalysts expected from achievement of ROE target. 

Could potentially hit ROE target in 2017 

  • Incorporating estimated fair-value gains for key projects under development, we expect CapitaLand to achieve its ROE target of 8-12% in 2017. 
  • 2017 bottom line should jump from project completions that would allow the company to book meaningful fair-value gains. 
  • Three key Raffles City projects in China’s Changning, Hangzhou and Shenzhen are scheduled for completion in 2016/17. 

Singapore office weakness factored in 

  • Our RNAV already builds in a weaker Singapore office market. 
  • Incorporating our TP for CapitaLand Commercial Trust (HOLD, TP SGD1.25), we believe the REIT’s implied P/BV of 0.7x already accounts for downside in this segment. 
  • Pre-sold homes in China to underpin 2016 CapitaLand is benefiting from a series of supportive policy measures in China. 
  • Management expects 2015 to be a record year with around 8,000 units worth CNY14b sold there (note). We expect their profit recognition to underpin its earnings in 2016.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-01-13
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 3.71 Down 3.88