CapitaLand - CIMB Research 2018-04-30: Execution On Track

CapitaLand - CIMB Research 2018-04-30: Execution On Track CAPITALAND LIMITED C31.SI

CapitaLand - Execution On Track

  • CapitaLand's 1Q18 EPS of 5.4 Scts makes up 20% of our FY18F forecast, we deem this in-line.
  • Lower Singapore contributions y-o-y due to high base in the previous year.
  • China performance remains robust, supported by residential profits and divestment gains.
  • Asset recycling remains on track.
  • Maintain ADD with a slightly higher Target Price of S$4.37.

1Q18 results highlights

  • CapitaLand’s 1Q18 revenue rose 53.3% y-o-y to S$1.38bn on higher contributions from Singapore and China residential and consolidation of CMT, CRCT and RCS Trust’s topline. 
  • Net profit slipped 19% y-o-y to S$319m due to a high divestment gain in the previous year. Excluding this, operating earnings of S$229m was up 25% y-o-y on higher development profits in Singapore and newly acquired/completed properties in China, Japan and Germany. 
  • 1Q18 EPS of 5.4 Scts was 20% of our FY18F forecast. We deem this in-line.

Y-o-y decline due to high-base effect

  • CapitaLand has restated its business segments by geography. CapitaLand Singapore, Malaysia and Indonesia, including both development and recurring income, saw a small decline y-o-y due to divestment gain from The Nassim in 1Q17. This was partly mitigated by a S$17m writeback of provision for 2 Singapore residential projects and sales at Victoria Park Villas, Sky Habitat and Marine Bleu, totaling S$150m during the quarter. 
  • Same-store retail NPI remained relatively stable, up 1.3% y-o-y.

China underpinned by residential profits and divestment gains

  • In China, CapitaLand handed over 1,328 homes valued at RMB1.9bn in 1Q. It has also locked in over 8,000 units of home sales, of which Rmb10.5bn is expected to be recognised for the remainder of this FY. 
  • There was also better performance from the malls portfolio thanks to a 6.7% same-mall NPI growth in China and fair value uplift from the divestment of 20 retail assets as part of its portfolio reconstitution activities. We anticipate more divestment gains to be recognised when the latter transaction is completed in 2Q.

Higher contributions from Vietnam

  • Vietnam enjoyed a surge in profits thanks to gains from the sale of a property investment in 1Q as well as higher handover of 259 units. Residential uptake continued to remain fairly robust, with sales of 95 residential units valued at S$23m in 1Q18. 
  • The group has a remaining 2,600 units sold valued at S$686m to be handed over from 2Q18 onwards.

On track to recycle S$3bn of assets annually and grow AUM

  • CapitaLand divested S$1.9bn worth of assets and made S$40m of investments in 1Q. It remains on track to recycle S$3bn of investment properties annually and maintains its AUM target of S$100bn by 2020. 
  • It has grown its third-part management contracts network by securing a contract to oversee asset planning, pre-opening and retail management of a 420,000 sq ft mall in Cambodia. This should also drive ROE going forward.

Maintain Add

  • We tweak our FY18-20F EPS estimates marginally to account for the reduced share cap base following its share buyback activities. Accordingly, our Target Price is raised to S$4.37, based on a 20% discount to RNAV. 
  • With a strong balance sheet and net debt-to-equity of 0.49x, the group has significant debt headroom to grow its AUM. 
  • Upside risks include faster-than-projected pace of recycling and reinvestment, while downside risks include slower-than-projected deployment of capital.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2018-04-30
SGX Stock Analyst Report ADD Maintain ADD 4.37 Up 4.340