Capitaland - DBS Research 2016-11-10: Strong earnings quality

Capitaland - DBS Vickers 2016-11-10: Strong earnings quality CAPITALAND LIMITED C31.SI

Capitaland - Strong earnings quality

  • Robust set of 3Q16 results.
  • Portfolio wide improvement; residential sales hit new highs.
  • Improved quality of earnings from recurring income base.

Improving earnings quality. 

  • We believe that CapitaLand Limited (CAPL) offers good value, trading at an attractive 0.7x P/B and 0.6x P/RNAV. 
  • The group’s strategy to focus on growing its commercial portfolio is bearing fruit, offering better earnings visibility. 
  • Coupled with opportunistic asset recycling of mature assets into its listed REITs/funds, there is ample upside potential to our earnings estimates. 
  • We maintain our BUY call with a target price of S$3.60.

Growing recurring revenues from retail mall portfolio and Ascott. 

  • Its property portfolio has c. 75% of assets in retail malls, and commercial integrated developments, including Ascott Group, which offers strong income visibility in the medium term.
  • The operating performance of its malls will improve as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term.

Robust set of 3Q16 results. 

  • CAPL reported a robust 28.4% growth in net profit to S$247.5m, on the back of stronger revenues which was up 27.7% to S$1,373m. 
  • The better performance was seen across its portfolio, but mainly driven by development projects in Singapore and China, and higher performance from its Singapore commercial portfolio. Tenant sales across its malls in Singapore and China were stable.


  • Our target price of S$3.60 is based on a 25% discount to our adjusted RNAV of S$4.80/share, tweaked slightly as we update project completion assumptions, and lower our margin 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 | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2016-11-10
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.600 Same 3.600