CapitaLand Limited - OCBC Investment 2016-08-05: RMB exposure well managed

CapitaLand Limited - OCBC Investment 2016-08-05: RMB exposure well managed CAPITALAND LIMITED C31.SI 

CapitaLand Limited: RMB exposure well managed

  • 2Q16 results within expectations
  • Chinese home sales remains firm
  • Cognizant of RMB risks

2Q16 results in line

  • 2Q16 PATMI decreased 36.6% YoY to S$294.0m mainly due to lower fair revaluation gains from properties. 
  • We highlight that, in 2Q15, there was a one-off fair value gain of S$125.9m from the change of use of development projects, excluding which the group’s adjusted operating PATMI in 2Q16 would have risen 31.8% to S$171.6m given firmer performances from Chinese shopping malls and developments, contributions from CapitaGreen and the group’s serviced residences business.
  • In terms of the topline, group revenues increased 9.7% to S$1,131.7m for the quarter due to strong contributions from the property development segment in China and Singapore and higher income from CapitaGreen and the group’s serviced residence business. 
  • Overall, we judge this quarter’s numbers to be broadly in line with expectations, and 1H16 revenues and PATMI now constitute 48.9% and 57.5% of our full year forecast, respectively.

Cognizant of RMB risk; exposure is well managed

  • The group sold 2.9k Chinese homes in 2Q16, up marginally versus the 2.7k units sold in 2Q15, and has ~3k units available for launch in the remainder of this year. 
  • Home sales in Singapore also saw a significant uptick, with 304 units now sold in 1H16 (versus 106 units in the same period next year) and most sales coming from a strong launch at Nine Cairnhill. 
  • In light of the recent depreciation of the RMB, we understand from management that a 1% depreciation of the RMB against the SGD would impact net profit and shareholder funds by 0.2% and 0.9%, respectively. 
  • While we are cognizant of the risks of further RMB depreciation, our assessment of key drivers today points to a likely base case scenario for a fairly orderly RMB exchange regime ahead. 
  • In addition, we highlight that CapitaLand is naturally hedged through its RMB borrowings (which it can further increase) and has the scope to raise or recycle capital through RMB-denominated private equity funds to mitigate its RMB exposure. 
  • Maintain BUY with an unchanged fair value estimate of S$3.68.

Eli Lee OCBC Securities | http://www.ocbcresearch.com/ 2016-08-05
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 3.68 Same 3.68