CapitaLand - UOB Kay Hian 2016-04-21: 1Q16 China Momentum Cushions Singapore Slowdown

CapitaLand - UOB Kay Hian 2016-04-21: 1Q16 China Momentum Cushions Singapore Slowdown CAPITALAND LIMITED C31.SI 

CapitaLand (CAPL SP) 1Q16: China Momentum Cushions Singapore Slowdown 

  • Results were in line with expectations. 
  • Management expects residential sales in China to continue to perform steadily in 2016, underpinned by favourable government policies. This will help cushion the slowdown in Singapore. 
  • CapitaLand is bulking up on its Vietnam presence while China and Singapore remain 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 in line with expectations. 

  • 1Q16 headline net profit of S$218.3m was up 35.4% yoy, underpinned by divestment gains from Somerset ZhongGuanCun Beijing. However, at the operating level, core net profit dipped 1.6% yoy while revenue dropped 2.3% yoy due to lower contributions from Singapore and Vietnam development projects, and the lack of fair value gains. Results were within expectations, with 1Q16 core net profit of S$152.8m coming in at 20.3% of full-year forecast. 

 Net gearing dipped in 1Q16 

  • Net gearing dipped in 1Q16 to 0.47x (4Q15: 0.48x), with average debt maturity at 3.9 years in 1Q16 (2015: 3.7 years). Assuming a comfortable gearing threshold of 0.5x, we opine that CAPL’s debt headroom stands at about S$1.7b. 
  • The group’s NTA per share was S$4.02 as at end-Mar 16. 


STOCK IMPACT 


 Continued sales momentum in China... 

  • Sales of new units grew 159% yoy to 3,377 units for about S$1b in 1Q16. CapitaLand expects residential sales in China to continue to perform steadily in 2016, underpinned by favourable government policies. 
  • The group has about 5,188 launch-ready units (mainly La Botanica, Citta di Mare, The Metropolis, Summit Era and Century Park), over the course of 2016. 

 …cushions the depressed outlook in Singapore. 

  • Management expects property cooling measures to continue weighing on the Singapore residential market (6% of CapitaLand’s total asset value) in the near term. 
  • 1Q16 saw 222 units moved (+222% yoy) at S$506m (+157% yoy). 
  • Projects in the pipeline for launch include The Nassim (55 units) and Victoria Park Villas (109 units). 
  • The group is also cautious on office rentals in Singapore. 

 Extension charges a slight sting on balance sheet. 

  • Assuming no further sales from its projects in Singapore, our burn-down extension charge estimate is S$94.6m, or 0.4% of CapitaLand’s book value. 
  • 1Q16 saw the group pay S$2.7m (or S$7psf) in extension charges for The Interlace. 
  • Assuming status quo in unit sales, we opine CapitaLand’s 2016 QC charges would amount to about S$13.6m (vs management’s previous estimate of S$7m), especially as d’Leedon’s extension charges start to bite in 3Q16 (TOP in Oct 14). 
  • We note that Urban Resort has been completely sold this quarter, thus QC charges for that project no longer apply. 

 New Tujia Somerset serviced residences brand unveiled in March. 

  • Post Aug 15’s announced S$122m investment in Tujia (valued at > US$1b), the JV has secured contracts to manage six serviced residences to be operated under the newly christened Tujia Somerset brand. This gives a significant boost of about 1,000 units to Ascott’s portfolio in China. 
  • The group aims to achieve 2,000 units under the new brand over 2016. We reckon this represents another step forward in growing the group’s serviced residence presence in China to 20,000 units by 2020. 
  • As the largest international serviced residence owner-operator in China, we opine 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). 

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

  • In 1Q16, CapitaLand moved 240 units (up 167% yoy) for S$36m (up 100% yoy) in Vietnam. It also achieved high sales in two recently launched projects in Ho Chi Minh, selling 91% of 128-unit Kris Vue and 77% of 1,152-unit Vista Verde. 
  • 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. However, it continues to stress the paramount importance of core markets China (46% by GAV) and Singapore (36% by GAV). 


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 2016 and 2017 earnings estimates, and introduce our 2018 numbers. 

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/ 2016-04-21
BUY Maintain BUY 4.08 Same 4.08


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