CapitaLand (CAPL SP) - UOB Kay Hian 2017-11-09: 3Q17 Ready To Pounce

CapitaLand (CAPL SP) - UOB Kay Hian 2017-11-09: 3Q17: Ready To Pounce CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - 3Q17: Ready To Pounce

  • CapitaLand's results were marginally below expectations. The group expects homebuying sentiment to improve further in Singapore and sees limited impact from property cooling measures in China as they mainly target properties for first time buyers and upgraders. 
  • Management seeks to strengthen CapitaLand’s presence in Singapore and China, and expand in Indonesia and Vietnam. 
  • Maintain BUY with an unchanged target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.


Results marginally below expectations. 

  • CapitaLand’s 3Q17 net profit grew 28.1% yoy to S$317.0m, boosted by fair value gains arising from Golden Shoe Car Park, the serviced residence component of Funan integrated development in Singapore and Citadines Biyun Shanghai in China. Excluding exceptional items, 3Q17 operating PATMI decreased 18.8% yoy to 204.5m mainly due to fewer handovers of residential projects in China and the impact of divestment of commercial assets in Singapore. 
  • Revenue increased 9.7% yoy, however, to S$1,507.2m due to higher contribution from development projects in Singapore, higher rental revenue from newly-acquired and opened shopping malls and serviced residences, as well as the consolidation of revenue from CapitaLand Mall Trust (CMT), CapitaLand Retail China Trust (CRCT) and RCS Trust (RCST). 
  • The results are marginally below expectation with 9M17 operating PATMI of S$748.9m representing 69.3% of our full-year estimate, after adjusting for the one-off S$160.9m gain from The Nassim sale.


Singapore residential market has turned but group exposure remains limited. 

  • The Singapore residential market turned up, with the private residential price index rising 0.5% qoq in 3Q17 after 15 consecutive quarters of decline, according to the URA. Management expects sentiment to improve further, underpinned by increased buying volume and a rise in home prices. The group continues to seek well-located sites to build its residential pipeline ( < 10% exposure to Singapore residential), but have been priced out at land bids.
  • 9M17 saw residential sales value in Singapore decline 7.3% yoy to $1,151m, with 293 units sold (from 510). Newly-launched projects in Singapore saw strong demand with 97% of units sold; Marine Blue and Sky Habitat had 74% and 90% of units sold, respectively.
  • Reportedly, CapitaLand has also been holding back sales for Sky Habitat, as well as Marine Blue (after the nearby Amber Park site was bagged by City Development’s aggressive S$906m bid), with postulations that the company may look to raise prices down the road.

China residential – Limited impact from property cooling measures. 

  • The 3Q17 handover in terms of sales volume (units) and value were down by 50% and 31% respectively. However, 9M17 still saw a 20.1% yoy increase in handover value to Rmb9.28b due to units with higher ASPs. 
  • In terms of future revenue recognition, CapitaLand has Rmb13.8b in value to be recognised from 4Q17 onwards from 8,000 sold units of Chinese residential properties if which have been sold, of which 10% is expected to be recognised in 4Q17. As the group mainly markets its residential properties to first time buyers and upgraders, management believes that the property cooling measures by the Chinese government will have a limited impact on sales. 
  • In 4Q17, the group has over 605 launch-ready units (comprising 333 units in Century Park (East); 272 units in The Metropolis, Kunshan).

Strong residential demand in Vietnam, with 89% of all launched units sold. 

  • Handover value increased to S$128m from S$27m, after 870 residential units were handed over in 9M17.

Rising investment income from China shopping malls, with 9 out of its 15 new mall openings targeted in China. 

  • That will bring its Chinese malls up from 60 to 69 in its portfolio. Management has also been set on improving existing malls’ performances, with same-mall NPI growing 7.9% yoy in 9M17.

Serviced residences outlook. 

  • Total RevPAU for 9M17 was flat yoy, but would have grown 2% yoy on a local currency basis. The gulf region, India and Singapore saw the sharpest decline with 9M17 RevPAU declining by 7% yoy. Those declines were dampened by RevPAU yoy growth of 3% in Southeast Asia and Australia (ex Singapore), 2% in Europe, and 1% in North Asia (ex China).
  • The company has also added 19 properties in 3Q17, setting Ascott on track to reach 80,000 units ahead of 2020. Management remains focused on growing its fee-based income by securing more management contracts, franchises and strategic partnerships, which will increasingly contribute to the group’s return on equity.

Focus markets. 

  • Management seeks to strengthen its presence in Singapore and China, and expand in Indonesia and Vietnam, through quality serviced residences and commercial projects.


  • Maintain BUY and target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.


  • We retain our estimates.


  • Improving sentiment in core markets Singapore and China.
  • Relaxation of property cooling measures (total debt servicing ratio etc.)

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-09
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.300 Same 4.300