CapitaLand (CAPL SP) - DBS Research 2017-11-08: Boosted By Gains From Asset Reconstitution

CapitaLand (CAPL SP) - DBS Vickers 2017-11-08: Boosted By Gains From Asset Reconstitution CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - Boosted By Gains From Asset Reconstitution

  • Another quarter of strong earnings boosted by gains from asset reconstitution activities.
  • Singapore residential inventory is depleting following robust sales momentum; implies need to replenish landbank.
  • Strong tenant sales growth seen especially from China malls in Tier 2 cities.
  • Management is positive on the Singapore residential and office sectors.

What’s New 

Capitaland 3Q17 – Boosted by gains from asset reconstitution activities

  • CapitaLand reported a 28.1% rise in PATMI to S$317.0m on the back of a 9.7% rise in revenues to S$1,507.2m and 60% rise in EBIT to S$793.5m.
  • Operating PATMI however fell 19% y-o-y to S$204.5m, mainly on lower contribution of residential projects, divestment activities.
  • 9M17 PATMI is 69% higher y-o-y to S$1,283.0m; EBIT rose 55% to S$2,399.9m.
  • The stronger overall performance was largely driven by fair value gains arising from Golden Shoe Car Park, serviced residence component of the Funan integrated development in Singapore, Citadines Biyun Shanghai in China as well as portfolio gains from the sale of Wilkie Edge (Singapore), CapitaMall Anzhen in China and a 60% stake in CapitaLand Vietnam Commercial Fund 1.
  • The strong growth in EBIT was largely driven by contribution from the group’s Singapore and China businesses (which made up 84.4% of group EBIT in 3Q17 vs 80.4% in 3Q16).

CapitaLand Singapore (revenue and EBIT up 46.5% and 48.8% y-o-y respectively)

  • Driven by recognition of higher-value residential sales of 108 units in 3Q17 (vs 206 units in 3Q16). The sales contribution was mainly from the sale of Victoria Park Villas (94% sold as of Oct’17) and The Interlace (99% sold) which more than offset the fall in contribution from the sale of part of its stake in One George Street, and Wilkie Edge.
  • The group has substantially sold most of its residential projects as of Oct’17 (most projects on the books are > 90% or close to 99% sold with the exception of Marina Blue (74%)).
  • Through CapitaLand Commercial Trust, the group acquired Asia Square Tower 2, which will be a driver to portfolio AUM and add to recurring income growth in the medium term.

CapitaLand China (CL China): (revenue and EBIT fell by 34% and 20% y-o-y respectively).

  • The group sold 2,087 units with a total sales value of RMB 4.3bn (vs 2,903 units with a sales value of RMB 5.8bn last year). The slower sales momentum was largely due to the lower number of units for sale YTD (9,000 vs 11,000 a year ago).
  • CL China’s commercial portfolio continues to see healthy growth momentum and take-up rates with Capital Square opening in Sept with 98% and 62% occupancy for its retail and office portions respectively.
  • The retail components from 3 Raffles City in Shenzhen, Changning, and Hangzhou reported strong committed occupancy rates of 90%.
  • Looking ahead, the group has close to RMB 13.8bn in unrecognised revenues to be delivered over the next 2 years; a majority of that (70%) in 2018.

CapitaMalls Asia (CMA; revenue and EBIT more than doubled y-o-y).

  • Stronger performance largely due to the consolidation of Capitaland Mall Trust (CMT), CapitaRetail China Trust (CRCT), and Raffles City Singapore Trust (RCST), and the portfolio of office and retail properties in Japan.
  • Excluding the re-measurement of gains and consolidation, revenues and EBIT for CMA were higher by 35.8% and 7.7% respectively.
  • Tenant sales growth across the portfolio was healthy at 1.2% in Singapore and 18.1% in China. On a same mall basis, performance had also improved with tenant sales growth (per sqft/m) higher on the back of higher shopper growth. 
  • On a country basis: Singapore + 0.8% sales; China + 6.8%; Malaysia is +6.0%; Malaysia +6.2%; India +17.7%. In China, we note that tenant sales growth in Tier 2 cities have been seeing strong sales momentum (YTD Sep +9.3%) compared to growth in Tier 1 (+4.2%) and Tier 3 (+5.5%) cities.

Ascott (revenue up 18.4% and EBIT up 168.7% y-o-y).

  • Ascott’s higher growth was mainly driven by newly acquired properties. 
  • In the quarter, Ascott completed the acquisition of an additional 60% of Quest Apartment Hotels as well as an 80% stake in Synergy Global Housing.

RevPAU per available room remains stable at S$117.

  • Looking ahead, with global macro environment showing signs of stabilisation and growth, we expect the group’s RevPAU to start trending higher in the coming quarters, complementing the division’s inorganic growth.

Maintain BUY, TP maintained at S$4.35. 

  • We maintain our target price to S$4.35 on the back of a 10% discount to RNAV. 
  • We believe that CAPL will see higher valuations on the back of improved property market sentiment, leading to strong sales. In addition, continued asset recycling activities could translate to higher gains and boost ROEs going forward.

Derek TAN DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2017-11-08
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 4.350 Same 4.350