Capitaland - DBS Research 2016-02-18: Steadfast In The Face Of Uncertainty

Capitaland - DBS Research 2016-02-18: Steadfast In The Face Of Uncertainty CAPITALAND LIMITED C31.SI 

Capitaland - Steadfast In The Face Of Uncertainty 

  • Recurring earnings forming 61% of PATMI highlights improved earnings quality 
  • Strong balance sheet empowers group with firepower to acquire opportunistically 
  • Strong recurring cashflows offer earnings visibility 


Improved earnings quality. 

  • We believe that CAPL offers compelling value, trading at an attractive 0.7x P/Bk and 0.6x P/RNAV. 
  • We expect the group’s strategy to focus on growing its commercial portfolio, and coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, will present upside to our earnings. 
  • We maintain our BUY call with a target price of S$3.70. 

Growing recurring revenues from its retail mall portfolio and Ascott. 

  • Its current property portfolio has up to 75% of its assets in retail malls, and commercial integrated developments, including Ascott Group, which offer strong income visibility in the medium term. 
  • We see improved operating performance for its malls, as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term. 

Launch of new PE funds to boost returns. 

  • Leveraging on its fund management expertise, CAPL aims to launch 5-6 private equity funds with funds under management of S$8-10bn by 2020. 
  • We think that by tapping on third-party capital, CAPL would be able to leverage on its larger scale to achieve better economies of scale, capitalise on market opportunities and at the same time de-risk its property level exposure. 

Valuation: 

  • Our target price of S$3.70 is based on a 25% discount to our adjusted RNAV of S$4.94/share, tweaked slightly as we update project completion assumptions. 
  • Our RNAV is based on our estimates of the market valuations of its various property developments and investment property assets across its various divisions. 

Key Risks to Our View: 

  • Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption expenditure and retail sales.



Derek Tan DBS Vickers | Mervin SONG DBS Vickers | http://www.dbsvickers.com/ 2016-02-18
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.70 Down 3.73


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