CapitaLand - RHB Invest 2016-02-18: Lacks Near-term Drivers Despite Attractive Valuations

CAPITALAND LIMITED C31.SI

CapitaLand - Lacks Near-term Drivers Despite Attractive Valuations

As we sense a more challenging environment in FY16, we downgrade CapitaLand to NEUTRAL with a lower SGD3.15 TP (10% upside).
China residential sales have likely peaked in FY15, and we do not expect another record year given fewer launch-ready units this year.

China would increasingly be the focus, as Singapore FY15 revenue fell to one-third of total turnover following a deadpan domestic market.
CapitaLand trades near GFC P/BV level, but we see limited catalysts in sight to boost share price in the current market.
We prefer City Developments (CIT SP, BUY, TP: SGD9.18) for its ongoing restructuring efforts and purer country play.

CapitaLand China achieved record sales of 9,402 units (FY14: 4,961 units), which helped to offset the inertia in Singapore residential sales (559 units in FY15 vs FY14’s 561 units).

Management guided that it would need an additional 1-2 years to achieve its sustainable ROE target of 8-12%. FY15 ROE stood at 6.1% (down 1ppt YoY).
We foresee the setting up of more private funds as the quickest means to boost ROE.

Despite limited catalysts, CapitaLand has amassed a sizeable war chest of SGD4.2bn in cash, with a low net gearing of 0.47x. It is attractively-priced at P/BV of 0.67x, below the historic average of 1.0x and just slightly above the global financial crisis (GFC) level of 0.60x.
At current levels, we think its downside risk is likely limited, especially with three quarters of its asset base on recurring income.

We lower our FY16F-18F PATMI by 4-8% and ascribe smaller revaluation gains moving forward.
Key downside risks include a worse-than-expected slowdown in China’s economy and a sharp depreciation of CNY vs SGD.
We downgrade to NEUTRAL and lower our TP to SGD3.15 (vs SGD4.22) after increasing our discount to RNAV to 30% (vs 25%) in an environment of lower revaluations.
We keep our sights set on the:
1. future deployment of its capital on high-yield acquisitions,
2. setting up of more real estate private funds to boost ROE, and
3. possible lifting of Singapore’s cooling measures in 2H16,
which all may warrant a re-rating.

Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2016-02-18

RHB Research SGX Stock Analyst Report NEUTRAL Downgrade BUY 3.15 Down 4.22