CapitaLand Limited - Phillip Securities 2017-11-13: Recovery In Office And Hospitality Segments

CapitaLand Limited - Phillip Securities 2017-11-13: Recovery In Office And Hospitality Segments CAPITALAND LIMITED C31.SI

CapitaLand Limited - Recovery In Office And Hospitality Segments

  • Continued sales momentum for residential properties at the Group’s key markets Singapore, Vietnam. China launches to remain slow.
  • Office markets in Singapore and China show signs of improvement.
  • RevPAUs for serviced residences seeing recovery in key markets.
  • Tenant sales growth for Singapore malls (40% of total mall portfolio) remains muted.
  • Maintain Accumulate with unchanged TP of S$4.19.



The Positives 


+ Continued sales momentum for residential properties at the Group’s key markets Singapore and Vietnam. 

  • China launches to remain slow. S$373mn worth of SG residential units was sold in the quarter, down 29% YoY. But this is mainly due to limited remaining inventory available for sale (Remaining as at 9M17: c.S$627mn). Nonetheless expect growth from Singapore segment to taper with dwindling inventory. 
  • Vietnam sales remain buoyant and 90% of launched units in China have been sold as at 30 Sept 2017. China launches (3Q17 down 21% YoY) could remain muted with cooling measures ongoing.

+ Office markets in Singapore and China show signs of improvement. 

  • With the exception of the 2 Raffles City office components which started operations last year (Shenzhen and Hangzhou), average occupancy for CAPL’s entire office portfolio stand at c.98%, a marked improvement especially in China where occupancy averaged c.90% as at FY16.

+ RevPAUs for serviced residences seeing recovery in key markets. 

  • Three largest markets for Ascott (by total units) - Southeast Asia/Australia (ex-Singapore), China, Europe showed strong YoY RevPAU growth of 1-12% in 3Q17 in local currency terms. China and Europe in RevPAUs YoY were mainly in Singapore and Gulf Region but these are considerably smaller markets for Ascott and CAPL ( < 8% of total units).


The Negatives 


- Tenant sales growth for Singapore malls (40% of total shopping mall portfolio) remains muted. 

  • Same mall tenant sales grew 0.8% YTD. We have yet to witness a meaningful recovery in tenant sales despite a strengthening economy and consumer sentiment. While same-mall NPI continues to grow across most major markets, Singapore’s same-mall NPI was flat YoY at S$683mn. China tenant sales growth look to be stabilising in mid-single digits.


Outlook 

  • With 85% of CAPL’s assets being investment properties (predominantly in Singapore and China) contributing to recurring income, CAPL’s earnings outlook remain stable.
  • RMB13.8bn worth of China residential sales are expected to be handed over and recognised mostly from 4Q17 to FY18 (FY17YTD: RMB9.3bn), which will provide further support to earnings over the next FY. We expect the 3 new Raffles City integrated developments in China which opened in 2Q17 to boost recurring income growth in FY18 as occupancy improves.


Maintain Accumulate with an unchanged TP of S$4.19.

  • There are signs of recovery for CAPL’s main markets for office and serviced apartment segments. We expect this recovery to sustain as global economies recover. 
  • With a strong base of stable recurring income, CAPL’s asset light management contract strategies for its retail and serviced residence segments also enables it to accelerate network and fee revenue growth. 
  • We like CAPL’s quality of earnings which have become more recurrent in nature.






Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2017-11-13
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 4.190 Same 4.190



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