CapitaLand - CIMB Research 2016-12-05: Multi-pronged earnings drivers

CapitaLand - CIMB Research 2016-12-05: Multi-pronged earnings drivers CAPITALAND LIMITED C31.SI

CapitaLand - Multi-pronged earnings drivers

  • Four strategic thrusts to drive earnings growth and underpin management’s medium-term ROE target.
  • China residential handover and new mall completions would underpin earnings growth over the next two years.
  • Maintain Add with an unchanged RNAV-based target price of S$4.17.

Resilient income profile with clear growth thrusts

  • CAPL has a resilient income profile with 70-80% of its net profit derived from recurring investment property sources. 
  • The group’s four-pronged strategy – strengthen its core businesses, evolve its business model to real estate investment and operating platforms, expand AUM by using investment management as a competitive advantage, as well as stay relevant in the future real estate market – is likely to underpin its medium-term ROE target.

China residential activities accelerating 

  • CAPL has locked in strong residential sales of 9,800 units valued at Rmb14bn as at 3Q16. An estimated 40% of this is expected to be handed over in 4Q16F. Another 1,840 units are launch-ready and in the pipeline. 
  • We do not expect the government’s recent residential cooling measures to have significant impact on its profile of first time and upgrade buyers. 
  • It also intends to build a sustainable development pipeline through private negotiation and urban renewal sources to improve returns.

New mall completions to boost income and ROE in FY18F onwards 

  • CAPL is scheduled to complete the inclusion of eight retail malls in its portfolio by end-2017 – six in China, one each in Malaysia and India. We expect additional rental contributions to kick in and boost ROEs in FY18F onwards. 
  • Meanwhile, its existing portfolio of malls is enjoying high occupancy of 90-98% and rising tenant sales (1.5- 20.0% yoy) and shopper traffic (1.2-13.5% yoy) in 9M16.

Expanding fee income

  • The group is on track to reach its S$10bn AUM target by 2020. Over the past 1-2 years, it has established a US$600m serviced residence and rental housing fund with Qatar investment Authority and set up the US$1.5bn Raffles City China Investment Partners III fund. 
  • It is also looking to finalise a US$500m Vietnam commercial property fund. This is in addition to the rising management fee income from expanding the portfolio of serviced residences under management by Ascott.

Maintain Add

  • We like CAPL for its capital recycling model. With gearing of only 0.47x at end-3Q16, it is well placed to capitalise on new investment opportunities, especially through its funds. 
  • In addition to a steadily-expanding recurring income base, its asset-light strategy should boost ROE in the longer run. 
  • Maintain Add with an unchanged target price of S$4.71, pegged at a 20% discount to RNAV. 
  • Downside risks include slower than expected deployment of capital into new investments.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.170 Same 4.170