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

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.

4Q/FY17 results met our expectations 

  • 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%.

Boosted Singapore landbank with Pearl Bank Apartment acquisition 

  • 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 to enjoy higher residential handover in FY18 

  • 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.

Strong growth momentum in Vietnam 

  • 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.

Malls and serviced residence operations underpin recurring income 

  • 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.

To recycle S$3bn assets p.a.; grow total AUM by 13% to S$100bn 

  • 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.

Maintain ADD 

  • 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