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

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.
  • Maintain Add, with a revised target price of S$4.15.

Selling entire stake in The Nassim 

  • 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.

Project de-risking exercise 

  • 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.

Secures commercial development site in Vietnam 

  • 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.

Deepening and broadening exposure in Vietnam 

  • 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.

Maintain Buy 

  • 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