CapitaLand Ltd - OCBC Investment 2017-08-04: Firm Set Of 2Q17 Results

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CAPITALAND LIMITED C31.SI

CapitaLand Ltd - Firm Set Of 2Q17 Results

• 2Q17 numbers remain healthy.
• Broadly in line with expectations.
• Maintain BUY, FV raised to S$4.13.

Operating PATMI up 21% YoY to S$206.8m 

• CapitaLand's 2Q17 PATMI increased 97% YoY to S$579.3m mainly due to stronger operating numbers, higher revaluation gains from investment properties in Singapore and China, and portfolio gains from the sale of Innov Tower in China and 18 rental housing properties in Japan. 
• After accounting for one-time items, operating PATMI for the quarter clocked in at S$206.8m which was 21% higher YoY. 
• In terms of the topline, however, 2Q17 group revenues declined 12% YoY to S$992.4m mostly because of lower contributions from development projects in Singapore, partially offset by firmer contributions from Chinese developments and rental income from newly acquired and newly opened properties. 
• 1H17 operating PATMI now cumulates to S$544.6m, which makes up 56% of our full year forecast, and we judge this quarter’s results to be broadly within expectations.

Singapore residential market likely bottoming out 

• Overall, we like that management remains focused on achieving its long term ROE target of 8% to 12%, actively reconstituting its portfolio and recycling capital into acquisitions and greenfield projects, such as Golden Shoe Car Park, while at the same time exercising considerable discipline in capital allocation, which is critical in our view. 
• That said, with this in mind, now that the Singapore residential market is likely bottoming out, we see some uncertainty in terms of the group’s ability to meaningfully replenish its almost depleted domestic land-bank at reasonable cost in what is a very competitive land-banking environment for developers today. 
• To wit, despite a bullish bid of S$1071 psf, CapitaLand’s consortium had missed the top bid in the recent government land sales tender for a site in Woodleigh Lane which drew a large pool of 15 bidders. 
• We also expect the group’s Chinese home sales to decline marginally this year, albeit to still relatively healthy levels, mostly due to a blockbuster 2016 and supply-side constraints. 
• After updating our valuation model with the latest results and assumptions, our fair value estimate increases from S$4.07 to S$4.13. Maintain BUY.

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-08-04

OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 4.13 Up 4.070