CapitaLand - CIMB Research 2018-02-13: Growth Momentum Continues

CAPITALAND LIMITED C31.SI

CapitaLand - Growth Momentum Continues

CapitaLand FY17 core net profit in line with expectations, making up 98% of our FY17 forecast.
Expect stronger China and Vietnam residential performance in FY18.
Plans to recycle S$3bn of assets annually and grow total AUM to S$100bn by 2020.
Maintain ADD with a slightly higher Target Price of S$4.34.

CapitaLand reported a set of in-line results, with 4Q revenue falling 35% y-o-y to S$1.2bn and PATMI falling 38% y-o-y to S$268m. Stripping out one-offs, operating PATMI would have been S$159m, -45% y-o-y.
For FY17, revenue of S$4.6bn was 12% lower y-o-y. However, PATMI of S$1.55bn was 30% higher y-o-y. FY17 operating PATMI of S$908m rose 5% y-o-y and was in line with our expectations, making up 98% of our FY17 forecast.
The group has proposed a DPS of 12 Scts, translating into a yield of 3.5%.

Singapore FY17 EBIT surged 74% y-o-y thanks to gains from the sale of The Nassim, rental income from Asia Square Tower 2 and higher residential sales of S$1.48bn, largely from Victoria Park Villas.
To replenish its landbank, it has successfully tendered for Pearl Bank Apartments en-bloc site for S$728m. The 613,701 sq ft GFA land parcel can house c.800 condos. It is likely to be launch-ready by 2019; we estimate breakeven at c.S$2,000 psf.

China FY17 EBIT grew a small 4% y-o-y to S$765m due to a lower handover of Rmb11.6bn worth of properties (vs. FY16 Rmb16bn).
More importantly, it has secured Rmb14.7bn worth of sales, of which c.Rmb11bn will be recognised in FY18. This will underpin near-term earnings performance. It has a remaining GFA of 3.8m sqm, providing strong earnings visibility.

In Vietnam, residential sales surged 63% y-o-y in FY17 and CapitaLand has locked in S$718 of pre-sales as at end-FY17, of which 44% is expected to be recognised in FY18.
Although Vietnam accounts for a small 2% of CapitaLand’s real estate AUM, we anticipate this segment to expand in the medium term.

In the malls business, portfolio occupancy remained high at 95-98% while tenant sales grew 1-7% y-o-y in FY17. It has another 7 malls across the region that are scheduled to open in 2019 and beyond.
Serviced residence operations delivered 1% revenue per available unit (RevPAU) growth y-o-y within its 43,135-unit portfolio with another 6,500 units scheduled to open in FY18. This should support its overall recurring income base, derived through a targeted optimal mix of 70-80% of AUM in investment properties.

Given the recurring income base forms 70-80% of its earnings, it intends to recycle S$3bn of investment properties annually, largely in China and Singapore.
At the same time, it intends to grow the total group AUM to S$100bn by 2020, from the current c.S$89bn.
In addition to real estate investments, it plans to adopt an asset-light approach via its real estate operating platforms to drive fee income. This should boost ROE going forward.

We tweak of FY18-19 EPS estimates post results. Our RNAV of S$5.42 is adjusted to reflect our higher Target Prices for its REITs. Accordingly, our Target Price is raised to S$4.34, pegged at a 20% discount to RNAV.
With a strong balance sheet and net debt to equity of 0.49x, CapitaLand has significant debt headroom to grow towards its targeted AUM by 2020.
Upside risks include a faster-than-projected pace of recycling and reinvestment.
Downside risks include slower-than-expected deployment of capital.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-02-13

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 4.34 Up 4.250