CapitaLand - DBS Research 2018-05-02: Commercial Portfolio Pulling Results Ahead

CAPITALAND LIMITED SGX: C31

CapitaLand - Commercial Portfolio Pulling Results Ahead

CapitaLand's 1Q18 PATMI in line with estimates; would have increased by 38% after stripping of en bloc sale of 45 units of The Nassim recorded a year ago.
Singapore land-bank boosted by the en bloc purchase of Pearl Bank apartments (Est GDV of S$1.4bn).
Raffles City China portfolio seeing stabilisation; same- store performance was up 10%.
International division seeing improved performance (Ascott), and AUM growth to drive profitability.

CapitaLand (CAPL) reported 1Q18 PATMI of S$319.1m, in line with estimates. While it fell 18.8% y-o-y, we note that a year ago, PATMI was boosted by the one-off gain from the en bloc sale of 45 units of The Nassim, which contributed c. S$160.9m in gains. Stripping the effect of the en bloc sale, PATMI would have grown by 38% y-o-y.
Topline and profit before tax (PBT) was higher by 53% and 9.6% y-o-y at S$1,375m and S$571.3m respectively. This was mainly due to higher revenues from opened malls and offices, and consolidation of CMT, CRCT and RCS Trust from Aug’17.
Higher development revenues in Singapore (Victoria Park Villas) and China (The Metropolis) were the main boosters to topline. In 1Q18, PBT was boosted by gains from the sale of an investment property in Vietnam as well as the sale of 20 malls in China.

CapitaLand’s development business (CL Singapore, CL China and CL Vietnam) saw a dip in momentum y-o-y.
In Singapore the group sold 40 units worth S$150m, mainly from high-value Victoria Park Villas. Most of the units in Singapore across 7 developments are now substantially sold ( > 96% with the exception of Marine Blue which sold 84% of 124 units). The group added Pearl Bank Apartments through an en bloc process and will look to launch it in 2019.
In China, sales was lower by c.50% y-o-y due to lower launches (998 units; RMB 1,676m sold). The group has another RMB 15.1bn to be handed over in the coming 1.5 years, of which 70% will be recognised in 2018. A pipeline of launch ready projects totaling 5,725 units is expected to be launched for sale, and will add to earnings visibility when sold.
CL Vietnam continues to see strong sales with 95 units sold with a sales value of S$23m in 1Q18. The group has close to S$686m to be recognised from 2Q18 onwards. The group expects to recognise close to 50% of the value in 2018.

The Raffles City China portfolio continues to deliver robust NPI of RMB 442m, contributed by the newly opened Changning, Hangzhou and Shenzhen properties. The operating properties (Shanghai, Beijing, Chengdu and Ningbo) recorded 8% increase in NPI y-o-y on the back of stronger rental reversions, implying stabilised yields of 4%-6%.
Retail Malls portfolio continues to see improved performance with tenant sales growing by 1.7% and 25.9% in Singapore and China respectively. Portfolio committed occupancy rates remain close to 100% with tenant sales on a per sqft basis seeing a general improvement. In China, tenant sales per sqm was strong at malls in Tier 1 (+7.7%) and Tier 2 (7.4%) cities while Tier 3 cities recorded steady growth (+3.8%).

The group’s international business saw a 38.4% rise in revenues due to contribution from the acquisition of Synergy Global Housing and higher rental income from a Japan portfolio acquired in Feb’17. The group’s serviced residences saw a 5% increase in overall RevPAR, mainly driven by its Singapore and European properties.
The management of these assets contributes close to S$43m in fees and is expected to grow to S$78m when close to 31,500 units in the pipeline are completed.

(BUY; Target Price S$4.35)

Derek TAN DBS Vickers | Rachel TAN DBS Vickers | https://www.dbsvickers.com/ 2018-05-02

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