CapitaLand - CIMB Research 2018-01-05: Unlocking Value From Mature China Malls

CapitaLand - CIMB Research 2018-01-05: Unlocking Value From Mature China Malls CAPITALAND LIMITED C31.SI

CapitaLand - Unlocking Value From Mature China Malls

  • CapitaLand is selling its stakes in 20 China malls, realising a net gain of S$75m.
  • Unlocking value of mature assets while reconstituting portfolio to tap future growth opportunities.
  • Maintain Add and TP of S$4.25.

Selling stakes in 20 China malls

  • CapitaLand today announced it is selling its share of interest in 20 malls in China as part of its move to reconstitute its retail asset portfolio in China. The total agreed property value of Rmb8,365m (S$1,705.9m) is 6.7% higher than the Jun 17 valuation of Rmb7,842.2m (S$1,599.3m).

Reconstituting portfolio for better resource allocation

  • These 20 malls make up 4% CapitaLand’s total portfolio and 7% of its China mall portfolio values as at Jun 17. Post transaction, CapitaLand will have 49 malls, now spread over 22 cities in China vs. 36 previously. 92% of the remaining malls are located in the Tier 1 and 2 cities.
  • Not only would the reconstituted portfolio offer stronger clustering effect, the sharper geographic focus would enable better resource allocation and economies of scale as well as enhance its capacity to capture growth opportunities in China.

Expect to realise S$75m net gain

  • CapitaLand targets to complete the deal in 2Q18. It expects to generate net proceeds of S$660m and realise a net gain of S$75m from this transaction. Income vacuum from the sale of the properties would be more than offset by the growing income contribution from the 1m sqm of new retail GFA completed in 2017, in our view.
  • More importantly, it has unlocked value from mature assets for reinvestment into new growth opportunities. In 2017, the group divested S$2.5bn worth of assets and redeployed capital into S$5.6bn of new investments. This should continue to drive RNAV growth going forward.

Maintain Add

  • We leave our earnings and RNAV estimates unchanged for now. We see this deal as positive as it will enable the group to boost portfolio total returns and ROE in the medium term. 
  • We maintain our Add call with TP of S$4.25, pegged to a 20% discount to RNAV.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-01-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.250 Same 4.250