CapitaLand (CAPL SP) - UOB Kay Hian 2018-02-14: 4Q17 Hopping On The En-bloc Bandwagon To Ride Residential Recovery

CapitaLand (CAPL SP) - UOB Kay Hian 2018-02-14: 4Q17 Hopping On The En-bloc Bandwagon To Ride Residential Recovery CAPITALAND LIMITED C31.SI

CapitaLand (CAPL SP) - 4Q17 Hopping On The En-bloc Bandwagon To Ride Residential Recovery

  • CapitaLand hopped on the en-bloc bandwagon with the acquisition of Pearl Bank Apartment to ride on Singapore’s residential recovery. Management guided for a positive outlook for the Singapore office segment on improved occupancies and rent pick-up, but noted that the retail segment continues to be challenged.
  • Management seeks to deepen its footprint in the core markets of Singapore and China, but will look to expand further in Indonesia. 
  • Maintain BUY with an unchanged target price of S$4.30.


Results in line with expectations. 

  • CapitaLand announced a 4Q17 PATMI of S$267.7m, down 37.8% y-o-y due to lower handover of units for development projects in China, but partially mitigated by rental contribution from newly-acquired and opened properties, as well as consolidation of revenue from CapitaLand Mall Trust (CMT), CapitaLand Retail China Trust (CRCT) and RCS Trust (RCST). This brings 2017 core profit to S$908.3m, up 5% y-o-y, excluding exceptional items. 
  • The results were in line with our expectation, with 2017 core profit forming 102% of our full-year forecast.

Dividend payout of 12 S cents in 2017, up 20% y-o-y, from 2016’s 10 S cents. 

  • This represents a payout ratio of 56% (vs 49% in 2016) at the operating PATMI level. 
  • Going forward, management is looking at a sustained increase in dividends supported by its recurring income portfolio, looking at a payout of about 30% of recurring income.


Residential segment performances across China, Singapore, and Vietnam. 

  • For its China residential segment, CapitaLand saw a 27% y-o-y decrease in handover value to Rmb11.6b in 2017 due to fewer units completed y-o-y . 
  • In Singapore, 2017 saw residential sales value increase by 4.5% y-o-y to $1,479m, with 407 units sold (from 571). 
  • In Vietnam, residential demand remained strong, with 92% of all launched units sold. Handover value increased to S$223m from S$46m, after 1,404 residential units were handed over in 2017.

Hopping on the en-bloc bandwagon to ride the Singapore residential recovery.

  • CapitaLand announced the acquisition of Pearl Bank Apartments through a private treaty collective sale for S$728m or S$1,515 psf ppr. They plan to redevelop the site into a highrise residential development comprising around 800 units with a host of social, shared facilities, targeting to launch in 1H19. 
  • We estimate a breakeven of about S$2,100-2,150 psf with selling expectation of above S$2,450 psf. We believe that the bid is building in a 15-20% appreciation in residential prices, reflective of management’s optimism on the Singapore residential recovery. 
  • The URA Residential Price Index has risen for two straight quarters (3Q17 and 4Q17) ending 2017 with 1% y-o-y growth after 15 consecutive quarters of declines. Management is actively seeking to replenish inventory.

Positive on Singapore office, but retail remains challenged. 

  • The optimism on the Singapore office segment is supported by higher office occupancies for the CBD, which rose 1.3% to 93.8% in Dec 17 and the sustained pick-up in average monthly Grade A office rent at S$9.40 psf (+3.3% q-o-q). 
  • The outlook for Singapore retail remains challenging, but management expects its portfolio of malls, which are well-connected to the public transport network, and located in large population catchments as well as popular shopping destinations, to remain resilient. The group intends to continue enhancing its existing portfolio, through third-party management contracts, capital reconstitution or AEIs.

Cautious optimism on China property. 

  • Management noted that the property cooling measures implemented by the Chinese government, mainly in tier-1 and tier-2 cities, are expected to cool the property market in China further in 2018 and restrict growth in home prices. As of Dec 17, the group had over 8,000 yet to complete units sold with a value of Rmb14.7b, 70% of which is expected to be handed over and recognised in 2018.
  • Management estimates its Chinese residential landbank to last for four years and targets to deliver 1m sqm each year, replenishing a similar amount yearly.

To double Ascott’s portfolio to 160,000 units. 

  • Serviced Residences saw a marginal 1% improvement in RevPAU in 2017. The Gulf Region & India as well as Singapore saw declines with 2017 RevPAU, down 8% and 5% y-o-y respectively. North Asia (ex China) also saw a marginal decrease of 1%. Those declines were dampened by RevPAU y-o-y growth of 1% in Southeast Asia and Australia (ex Singapore), 4% in Europe and 1% in China. 
  • Management plans to double Ascott’s portfolio to 160,000 units. With 72,000 units at the end of 2017, Ascott is on track to reach 80,000 units in 2018.

Focus markets. 

  • Management seeks to deepen its footprint in the core markets of Singapore and China, but will look to expand further in Indonesia through quality residential 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/ 2018-02-14
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 4.300 Same 4.300