CapitaLand - Maybank Kim Eng 2018-05-02: Capital Recycling On Track

CapitaLand - Maybank Kim Eng 2018-05-02: Capital Recycling On Track CAPITALAND LIMITED SGX: C31

CapitaLand - Capital Recycling On Track


Maintain BUY and SGD4.10 Target Price

  • 1Q18 net profit, though lower y-o-y, was in-line with our and consensus estimates. CapitaLand is on track to meet its capital-recycling target this year. 
  • Following the portfolio sale of 20 China malls in 1Q18, we expect more gains to be booked in 2Q18 after the sale of Sembawang Shopping Centre by CapitaLand Mall Trust (CMT)
  • Our RNAV is lowered marginally to SGD5.46 (from SGD5.49) after incorporating the latest Target Prices’ and market prices of its REITs. Maintain BUY and SGD4.10 Target Price based on an unchanged RNAV discount of 25%. 
  • Trading at 31% RNAV discount and 3.5% yield, CapitaLand offers the most attractive valuation amongst the large caps.



Lower profit due 1Q17 asset sale

  • 1Q18 net profit fell 18.8% y-o-y to SGD319m due to the high year ago base from the bulk sale of The Nassim in 1Q17, which accounted for SGD160.9m of the bottom line. Overall, 1Q18 made up 22% of our full- year estimate and 33% of consensus. With Victoria Park Villa and Bedok Residences now fully sold, CapitaLand reversed SGD17m of provisions previously made. 
  • It reported weaker sales in China with 998 units worth CNY1.7b sold as fewer projects were launched (1Q17: 2,149 units worth CNY3.9b). Nonetheless, unbilled sales held steady with 8,000 units worth CNY15.1b to be recognised from 2Q18.


Portfolio reconstitution in progress

  • CapitaLand is on track to meet its capital-recycling target this year. Recall that management set a target to recycle SGD3b of investment properties annually, which could realize portfolio gains of c.SGD200m a year. In 1Q18, it realised SGD35.4m of gains at the PATMI level from the divestment of 20 malls in China. 
  • The impending divestment of Sembawang Shopping Centre by CMT (Rating: HOLD; Target Price: SGD2.15) for SGD248m (vs carrying value of SGD126.9m) should lead to another SGD36m of gains for its 30% stake in the REIT in 2Q18.


Share price support from share buybacks

  • We see strong share price support with the company embarking on one of the largest shares buyback programmes in recent history. 
  • During the quarter it purchased SGD208.8m worth of shares at an average price of SGD3.62. The 57.6m shares purchased represented a sizeable 1.4% of its share base. This is significantly larger than the SGD55.3m and SGD56.8m spent in 2015 and 2016, respectively.


Swing Factors 


Upside 

  • Strong rebound in China and Singapore home sales. 
  • Monetisation of assets via a sale to its funds under management or third parties. 
  • Higher market value of its listed REITs. 

Downside 

  • Overpaying for assets or land. 
  • Poor execution of development projects. 
  • Sharp increase in interest rates could hit demand for properties and drive down asset prices. 






Derrick Heng CFA Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2018-05-02
SGX Stock Analyst Report BUY Maintain BUY 4.100 Same 4.100



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