CapitaLand - DBS Research 2016-11-25: Good morning, Vietnam, Guangzhou and Shenzhen!

SGinvestors.io

CAPITALAND LIMITED C31.SI

CapitaLand - Good morning, Vietnam, Guangzhou and Shenzhen!

• CapitaMall SKY+ achieved 91% occupancy.
• Datansha phase 1 to launch by mid-2017, Raffles City Shenzhen to open by 2017.
• Robust sales in Vietnam; targets to establish a US$0.5bn commercial fund in 2017.

Improving earnings quality. 

• We believe that CapitaLand Limited (CAPL) offers good value, trading at an attractive 0.7x P/BV 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.

China’s second wave of completion; Vietnam, a growth market.

• We visited CapitaLand’s properties in Guangzhou, Shenzhen and Vietnam recently. 
• CapitaMall SKY+ has hit an occupancy of 91% vs 79% in December 2015 when it first opened. Datansha project which has been delayed is expected to launch the residential properties by mid-2017. 
• Raffles City Shenzhen is not on track to open in 2017. Updates from CLC showed that the latter four Raffles City China developments are slated to open progressively from 2017-2019. 
• Vietnam has shown strong sales, recording 60-80% take-up rates in recent property launches. Management targets to launch a US$0.5bn commercial fund by 2017 to seed commercial properties in Vietnam.

Valuation

• Our target price of S$3.60 is based on a 25% discount to our adjusted RNAV of S$4.80/share.

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.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2016-11-25

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 3.600 Same 3.600