CapitaLand - RHB Invest 2017-11-08: Building On Recurring Income Base

CapitaLand - RHB Invest 2017-11-08: Building On Recurring Income Base CAPITALAND LIMITED C31.SI

CapitaLand - Building On Recurring Income Base

  • CapitaLand's 3Q17 results were in line. CapitaLand is cautiously optimistic on Singapore’s residential outlook and is on the lookout for acquisitions at the right price. 
  • In China, the cooling measures are starting to take effect, with residential sales growth expected to slow down in the near term. Other focus markets include Japan, Vietnam and Indonesia. 
  • Meanwhile, CapitaLand has been steadily focussing on building a recurring income base from new acquisitions, the opening of new malls/serviced residences and expanding its management contracts. 
  • Maintain NEUTRAL and TP of SGD3.90 (6% upside), as we see limited near-term catalysts.

9M17 core PATMI up 30%YoY; results broadly in line. 

Key highlights 

Residential outlook. 

  • CapitaLand has been turning cautiously optimistic on the Singapore residential market, but would continue to adopt a disciplined approach on acquisitions – with location being a key factor. 
  • Based on recent media reports, CapitaLand has also temporarily halted sales of two of its residential projects, in anticipation of price increase. We note that CapitaLand currently has very limited unsold residential inventory (< SGD1bn, < 2% of total assets) and has not acquired residential sites in last few years. 
  • In China, residential cooling measures are slowly starting to take effect and sales growth is expected to slow down in coming quarters. However, CapitaLand has > 8,000 units sold and yet to be recognised, with sale value of CNY13.8bn, which would contribute positively.

Retail – opening of new malls and management contracts to boost recurring income. 

  • CapitaLand is on track to open eight retail malls this year, with six of them already commencing operations. The group has also been focusing on expanding its retail fee income base, with the signing of six mall management contracts in China, and one in Singapore. 
  • It has also been proactive in tackling the ecommerce threat, by forging alliances with Alibaba Group and Lazada Group, and positioning itself as an omni-channel retail landlord.

Ascott – growing rapidly. 

  • Ascott added 19 properties to its portfolio in 3Q17, and currently has about 70,000 units under management. It is well on track to exceed its target of achieving 80,000 units by 2020. 
  • Ascott recently acquired its first property in Silicon Valley, California, and has also become the largest serviced residence operator in Singapore and Indonesia.

Consolidation of CMT, CRCT and RCST. 

  • In 3Q17, CapitaLand assessed that it now has sufficient interest to control CMT, CRCT and RCST, and accordingly, consolidated them into its group results with effect from Aug 2017. This came on the back of the progressive increase in its equity stakes over years, via issuance of units as fee considerations. 
  • The consolidation effect boosted its asset and equity base by 26% and 23% respectively.

Maintain NEUTRAL and TP of SGD3.90, pegged at a 20% discount to RNAV of SGD4.87. 

  • Key re-rating catalysts would be the boosting of recurring income from private funds, mall completion and management contracts, opportunistic M&As and the relaxation of policy measures in Singapore and China. 
  • The key downside risk would be a prolonged real estate slowdown in key operating markets.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-08
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 3.900 Same 3.900