CapitaLand - RHB Invest 2017-08-04: Focusing On Building Recurring Income

CapitaLand - RHB Invest 2017-08-04: Focusing On Building Recurring Income CAPITALAND LIMITED C31.SI

CapitaLand - Focusing On Building Recurring Income

  • CapitaLand’s 2Q17 results are in line with our estimate. We expect the near-term slowdown in its residential sales in China (due to cooling measures) to dampen its outlook. 
  • It is still cautiously optimistic on Singapore properties and aims to continue seeking well-located sites. Other focus markets include Japan and Vietnam. 
  • Ascott is still rapidly expanding this year, adding over 15,000 units. Recurring income is set for a boost, with the planned opening of eight malls in 2017 and expansions via management contracts. 
  • Maintain NEUTRAL, with a SGD3.90 TP (from SGD3.84, 4% upside) as its valuation looks fair.

Cautiously optimistic on Singapore’s residential market. 

  • Management said that it will continue to remain disciplined in residential acquisitions in Singapore and seek well-located sites. It noted that residential market signals remain mixed and expects cooling measures to still weigh on its outlook. 
  • Currently, its unsold residential inventory in Singapore, worth c.SGD1bn, accounts for only about 2% of total assets. 
  • In 2Q17, CapitaLand sold 102 units (2Q16: 82 units) at SGD281m (2Q16: SGD210m). Key projects that accounted for sales include Victoria Park Villas and Sky Habitat.

Opening retail malls in China to boost recurring income. 

  • Three Raffles City malls in China (Hangzhou, Changning and Shenzhen) began operating recently, with near-full occupancy rates. CapitaMall Westage in Wuhan also opened in April, with a committed occupancy rate of 93%. The opening of these malls would lift recurring income from its China segment. 
  • On residential units, CapitaLand noted that property cooling measures are starting to impact volumes and prices. In 2Q17, it sold about 3,084 units worth CNY6.5bn. It has about 3,000 units ready for launch in 2H17.

Asset recycling. 

  • YTD, it has divested SGD2.4bn worth of assets and deployed SGD2.04bn as capital. Notable divestments include office assets in China and Ascott properties. 
  • Key investments include new office and retail assets in Japan and the expansion of Ascott’s portfolio. 
  • Management noted that Greater Tokyo, Japan is a focus market for acquisition – with potential to double its assets under management to SGD5bn. More acquisitions are expected in Vietnam, too, as it seeks a promising residential and commercial property segment.

Ascott is growing rapidly. 

  • Ascott continues to grow quickly, adding c.18,000 units to its portfolio this year. With these, Ascott currently has about 70,000 units under management and is well on track to exceed its target of achieving 80,000 units by 2020. 
  • Notable acquisitions include Synergy Global Housing (80% stake), an extra 60% stake in Quest Apartment Hotels and entry into the Brazil market. 
  • We expect the new acquisitions to contribute an additional SGD25-30m in fee income annually, upon stabilisation.

Maintain NEUTRAL, with a new SGD3.90 TP reflecting a 20% discount to RNAV. 

  • Our revised RNAV factors in recent acquisition/divestments and higher contributions from its fund management business. 
  • Key re-rating catalysts are the setting up of more real estate private funds, opportunistic M&As and the relaxation of policy measures. 
  • The key downside risk would be a prolonged real estate slowdown in key operating markets.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-04
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.90 Up 3.840