CapitaLand - UOB Kay Hian 2016-02-18: 4Q15 ~ Provisioning On The Back Of Strong Performance In China

CapitaLand - UOB Kay Hian 2016-02-18: 4Q15 ~ Provisioning On The Back Of Strong Performance In China CAPITALAND LIMITED C31.SI 

CapitaLand (CAPL SP) 4Q15: Provisioning On The Back Of Strong Performance In China 

  • Strong performance in China to cushion the impairment losses and extension charges in Singapore. Exposure to the renminbi is more than palatable. 
  • Watch out for the formal launch of its tie-up with Tujia (which was announced in 2015), China’s answer to Airbnb, in March. 
  • CapitaLand is bulking up on its Vietnam presence while China and Singapore remain its core markets. 
  • Maintain BUY and target price of S$4.08, pegged at a 20% discount to our RNAV of S$5.11/share. 


RESULTS 


• Results above expectations. 

  • CapitaLand saw 4Q15 PATMI of S$247.7m decline 39.5% yoy while operating 4Q15 PATMI of S$249.2m declined 12.1% due to a lack of profit recognition from Westgate Tower. 
  • During the quarter, top-line grew 14.6% yoy while same-store (excluding Westgate Towers) operating PATMI grew 55.7% yoy underpinned by higher project handover in China coupled with improved shopping malls and serviced residences operating performance. 
  • Full-year 2015 core PATMI of S$823.6m exceeds our expectations, representing 116.6% of full-year forecast mainly due to higher-than-anticipated contributions from its residential projects in China. 

• Dividend of 9 S cents declared.

  • Net gearing stood at 0.48x in 4Q15 (3Q15: 0.51x), with average debt maturity at 3.7 years in the quarter. The group’s NTA per share stood at S$4.11. 


STOCK IMPACT 


• Buoyant sales momentum in China… 

  • 4Q15 saw sales of new units grow 17% yoy to 2,910 units for Rmb3.8b. 
  • For the full year, 9,402 units were moved (89.5% yoy) for a total of Rmb15.4b (104.2% yoy). CapitaLand expects residential sales in China to continue its steady performance in 2016, underpinned by favourable government policies. 
  • CapitaLand has over 7,300 launch-ready units (mainly La Botanica, The Metropolis, Summit Era and Century Park), and over 9,000 units expected to complete in 2016. 

• …cushions impairment losses and extension charges in Singapore. 

  • CapitaLand took S$110m in impairment losses across several Singapore residential projects based on an internal stress test exercise. 
  • Management estimates that extension charges from The Interlace, Urban Resort and D’Leedon should amount to about S50 psf or S$7m in 2016. 
  • Our worst-case estimate of S$147.8m assumes that no future sales is ostensibly significant, and represents a mere 0.6% of Capitaland’s book value. 
  • Management expects property cooling measures to continue weighing on the Singapore residential market (7% of CapitaLand’s asset value) in the near term. 4Q15 saw 93 units moved at S$147m (+25.6% yoy). 
  • FY15 saw residential sales reach S$559m in Singapore, a slight dip of 0.3% yoy, with 244 units sold (-12.2% yoy). 
  • Projects in the pipeline for launch include The Nassim (55 units), Cairnhill (268 units) and Victoria Park Villas (109 units). 

• Renminbi exposure more than palatable. 

  • Management was quick to allay investor concerns regarding the depreciating renminbi, pointing out that despite it weakening against the US dollar, the Chinese renminbi actually strengthened against the Singapore dollar over 2015, before moderating this year. 
  • Based on internal calculations, management reckons a 1% depreciation in the renminbi would translate to about S$8m decline in full-year PATMI, or about 0.75% of 2015 PATMI. 
  • On the balance sheet side, the same 1% depreciation would result in a S$130m impact, or about 0.75% of equity. 

• Resilient balance sheet. 

  • Management’s theme of “resilience” was echoed in CAPL’s balance sheet, with net gearing down to 0.48x in 4Q15. 
  • We observe that this would leave CAPL with healthy debt headroom of S$1.2b assuming comfortable net gearing of 0.5x. 
  • Interestingly, management noted that excluding the impact of FRS 110, ie balance sheet consolidation of three of its REITs, net debt to equity would stand at 0.41x, or pre-CMA privatisation levels. 

• Bulking up on Vietnam presence while China and Singapore remain core markets. 

  • CAPL moved 448 units (up 335% yoy) at S$88m (up 417% yoy) in Vietnam in 4Q15. For the full year, CAPL sold 1,321 units for S$226m (up 48.6%). 
  • Management had previously guided for a comfort level of up to 5-10% exposure in Southeast Asia, with capex guidance of$1.5b-2b, excluding new acquisitions. 
  • Management continues to stress the paramount importance of core markets China (47% by GAV) and Singapore (36% by GAV). 

• Expect formal launch of 2015’s announced tie-up with Tujia in March, 

  • with further details to announced then. CapitaLand’s has so far remained tight-lipped on further details regarding its Aug 15 announcement of a S$122m investment in China’s answer to Airbnb, Tujia (valued >US$1b). 
  • We reckon that this is another step towards catalysing the group’s serviced residence presence in China to 20,000 units by 2020. 
  • As the largest international serviced residence owner-operator in China, the group intends to marry its offline prowess in the serviced residences with Tujia’s reach across China (over 310,000 listings mainly in China, Bangkok, Singapore and Tokyo). 


VALUATION/RECOMMENDATION 

  • Maintain BUY and target price of S$4.08, pegged at a 20% discount to our RNAV of S$5.11/share. 


EARNINGS REVISION 

  • We retain our estimates. 


SHARE PRICE CATALYSTS 

  • Improving sentiment in core markets Singapore and China. 
  • Relaxation of property cooling measures.



Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2016-02-18
BUY Maintain BUY 4.08 Same 4.08


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