CapitaLand (CAPL SP) - Maybank Kim Eng 2017-07-05: A Banner Year

CapitaLand (CAPL SP) - Maybank Kim Eng 2017-07-05: A Banner Year CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - A Banner Year

Boots on the ground 

  • We recently visited three integrated developments, two shopping malls and one office building owned by CapitaLand. Worth a combined CNY24.6b (SGD4.9b), these newly-completed properties are located in the Chinese cities of Wuhan, Shenzhen, Hangzhou and Shanghai.
  • Development gains from the phased opening of these projects will provide a one-off lift to earnings this year and add to its recurring income stream in the years beyond. 
  • Going forward, shareholder returns will be boosted as the share of projects under development looks set to fall by 3ppt (from 13%) as the mega integrated projects move beyond the capital intensive construction phase. 
  • Maintain HOLD and RNAV-based Target Price of SGD3.75 as valuations appear fair following its strong rally YTD.

Exporting the Raffles City brand 

  • 2017 marks a banner year for the group as three major Raffles City projects get completed in Hangzhou, Shenzhen and Shanghai. Building on the success of its Raffles City project in Singapore, CAPL has exported the Raffles City brand name to various cities in China. 
  • Its ability to execute complex integrated projects is a key differentiator with management guiding for better returns achieved in these projects.

CapitaMall Westgate and CapitaMall 1818 (Wuhan) 

  • CapitaMall Westgate is part of an integrated project with a shopping mall, two office towers and a block of SOHO apartments. The site was acquired in Jan 2013 with the recent opening of its retail component in April 2017. The mall is already profitable in the second month of operation and has shopper traffic of 20-30k on weekdays and 50-60k over the weekends. 
  • CapitaMall 1818 is a shopping mall that was opened in Sep 2015. CAPL acquired the property in a bare-shell condition from its original developer in Sep 2012 and has since developed it into a 99%- leased mall catering to a population catchment of 340k people.

Raffles City Shenzhen, Hangzhou and Changning 

  • Building on the success of its Raffles City project in Singapore, CAPL has exported the Raffles City brand name to China with eight projects in various stages of completion. During the trip, we visited three Raffles City projects that would be opening in phases this year: Raffles City Shenzhen, Raffles City Hangzhou and Raffles City Changning. 
  • The retail components of these three integrated developments have achieved high levels of occupancy with 97-99% of shop space already committed. All three projects offer direct connectivity to metro lines that provides strong shopper traffic flow. 
  • Raffles City Shenzhen is a 121.8k sqm GFA project with the retail, office and serviced apartments accounting for 51%, 26% and 22% of the property. 
  • Raffles City Hangzhou is a majestic 60-storey development that is located in Qianjiang New Town, Hangzhou’s new CBD. It offers excellent views of the Qiantang River nearby and is the largest Raffles City project for the group with residential, offices, retail and hospitality segments.
  • Raffles City Changning is CAPL’s second Raffles City project in Shanghai. It is built on a heritage site with three Grade A office towers, two retail podiums and five heritage buildings.

Innov Center (Shanghai) 

  • Innov Center, formerly known as Guozheng Center, is an office development located in a decentralised CBD area along the Middle Ring Road. The property was recently completed in Dec 2016 and consists of three office towers and ancillary retail space. A classic example of portfolio reconstitution, CAPL divested Innov Tower, a fully-valued office building in Shanghai, in June 2017 and recycled the proceeds into this property. 
  • With only one of the three towers leased out, the company will work to enhance the value of this property by leasing out the rest of the property in the year ahead.

Adapting to a changing retail landscape 

  • With an evolving business landscape, CAPL is experimenting with new retail concepts and has added more experiential offerings in its malls. From 20-25% a decade ago, F&B tenants makes up a larger 35-40% share of tenants in its China malls today. In tandem with rising affluence in the country, higher value meals have been introduced by retailers and enhanced tenants’ ability to pay higher rents. 
  • We observed clever designs for retail components of the integrated developments with connectivity designed to enhance traffic flow from other components. 
  • Its pipeline of malls includes the six malls that were recently signed on management contracts, and where ROFRs had been negotiated.

Capital management through portfolio reconstitution 

  • CAPL is actively recycling its capital by reconstituting its portfolio of assets. 
  • YTD, the group has divested SGD1.6b worth of properties and reinvested into assets worth SGD1.3b, effectively trading away fully valued assets for new properties with upside potential.

Swing Factors


  • Strong rebound in China and Singapore home sales.
  • Monetisation of assets via a sale to its funds under management or third parties.
  • Higher market value of its listed REITs.


  • Overpaying for assets or land.
  • Poor execution of development projects.
  • Sharp increase in interest rates could hit demand for properties and drive down asset prices.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-07-05
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 3.750 Same 3.750