CapitaLand - CIMB Research 2017-01-17: Lifting exposure in Vietnam

CAPITALAND LIMITED C31.SI

CapitaLand - Lifting exposure in Vietnam

Sells stake in The Nassim for S$411.6m, acquires commercial land in Vietnam.
The sale reflects a de-risking of its Singapore residential portfolio and potential freeing up of capital for redeployment into new investments.
Deepening exposure in Vietnam by reinvesting, into the office upcycle, potential ROE-boost in the medium term.

Capitaland (CAPL) announced that it has sold its entire interest in Nassim Hill Realty (NHR) to Kheng Leong. NHR is the property development company which built The Nassim high-end condo project.
The aggregate cash consideration is S$411.6m and takes into account the agreed property value of the remaining 45 unsold units of S$407.2m, or S$2,300psf.
The group estimates that it could make a net gain of 3.8 Scts per share from the sale.

The ASP of S$2,300psf for The Nassim is below our current estimate of S$2,800psf and reflects a bulk discount similar to other market bulk transactions.
Post sale, CAPL would not incur the risk of paying the Qualifying Certificate (QC) penalty for the project's remaining unsold stock.
The sale would also enable the group to potentially free up capital for redeployment into new investments.

In a separate announcement, CAPL said it has entered into a conditional agreement to acquire a prime commercial site in District 1 in Ho Chi Minh City CBD to develop a Grade A commercial building. Construction of the 106,000 sqm building is slated to commence in 1Q17 and complete in 2020.

This latest development is in line with CAPL’s strategy to deepen its exposure in Vietnam and to establish a US$500m fund to focus on commercial properties there. This move is also in line with its strategy to recycle capital into new investments to grow RNAV in the medium term.
According to property consultant Savills, grade A office occupancy in HCMC was at 98% in 3Q16. Savills anticipates demand to outpace supply in 2017 and support rental growth.

We adjust our FY17-18F EPS by +7.4%/-4.4% to factor in The Nassim sale. Given the lower ASP achieved, we tweak our RNAV slightly lower to S$5.19. This reduces our target price slightly to S$4.15, still premised on a 20% discount to RNAV.
We continue to like CAPL for its ROE-boosting capital recycling strategy and maintain our Add rating.
Potential re-rating catalysts are near-term ROE-boosting new investments. Key risks to our call are rising unemployment or a slower-than-expected economic outlook.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-01-17

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.15 Down 4.170