CapitaLand - RHB Invest 2018-05-02: Building On A Solid Foundation

CapitaLand - RHB Invest 2018-05-02: Building On A Solid Foundation CAPITALAND LIMITED SGX: C31

CapitaLand - Building On A Solid Foundation

  • CapitaLand’s results are broadly in line with consensus and our estimates. Its active efforts to build a stable recurring income base are beginning to reap rewards, with contributions kicking in from eight malls opened last year along with higher fee income.
  • We expect the company to selectively acquire a few residential sites in Singapore this year to replenish its residential land bank. We also like its move to actively rationalise its portfolio via divestments, and sharpen its focus in core markets.
  • Valuations are attractive, with the stock trading at a ~25% discount to our RNAV estimate, while offering a dividend yield of 3.5%.
  • The stock is one of our Top Picks in the property developer space, and has a Target Price of SGD 4.20 (12% upside).

Results broadly in line.

  • CapitaLand’s core PATMI of SGD228.7m (-33% y-o-y) accounted for 22% of our full-year forecast. Core PATMI would have been higher 25% y-o-y, excluding a net gain of SGD160.9m from the bulk sale of 45 units in The Nassim in 1Q17. Singapore and China markets remain the key drivers, accounting for 83% of EBIT. 
  • CapitaLand also booked in a net gain of SGD68.4m in 1Q18, mainly from the divestment of 20 malls in China (SGD35.4m) and property investments in Vietnam (SGD24.3m).

Making a comeback in Singapore’s residential market.

  • In Feb 2018, CapitaLand announced the acquisition of Pearl Bank Apartments (PBA) via a collective sale for SGD929.4m (includes a lease top-up premium). The land acquisition comes after a hiatus of almost four years. We expect CapitaLand to continue to selectively bid for residential land, and potentially acquire 1-2 more sites in 2018. The group is also one of 15 bidders for a Holland Road site, with the final winner likely to be announced in 2Q18.
  • With the overall pick-up in the residential market sentiment, CapitaLand has sold out most of its launched units (~98%). The buoyant market also helped it to write back SGD17m of provisions for Victoria Park Villas and Marine Blue.

Expanding its Vietnam portfolio.

  • In 1Q18, CapitaLand acquired a prime site for its first integrated development in Hanoi. The site will be developed into a mix of residential , office and retail segments, with an estimated GDV of USD217m (SGD285m). It also set up its second commercial fund focused in Vietnam, which closed at USD130m. 
  • CapitaLand and MEA Commercial Holdings Pte Ltd each hold a 50% stake in the fund. The fund has a life span of eight years, and will focus on Grade-A commercial properties. While Vietnam currently accounts for only 2% of its total assets presently, we see good potential in scaling up its presence there in the near term.

Building steady fee income from its Ascott portfolio.

  • Its serviced residence platform has been growing rapidly, with 75,000 units now in operation contributing to a healthy fee income of SGD43m in 1Q18. Another 31,500 units are currently in various stages of development, which – when completed – is expected to boost fee income by ~50%. 
  • Management has set an ambitious target to double its portfolio to 160,000 units by 2023.

Active share buybacks a sign of deep value.

  • YTD, CapitaLand has bought back 57.6m of its own shares (1.4% of total) worth SGD208.8m. The average purchase price of SGD3.62 is at a ~20% discount to its book value, and is accretive to unitholders’ value. We see this move as a vote of confidence by management towards the stock’s underlying deep value, with shares still trading at a ~25% discount to RNAV.

Maintain BUY, with an unchanged Target Price of SGD4.20,

  • ... pegged at 15% discount to our RNAV estimate of SGD4.94/share. 
  • Key catalysts are selective acquisitions in Singapore, building recurring income via an asset-light model, and unlocking value through divestments.

Shekhar Jaiswal RHB Invest | https://www.rhbinvest.com.sg/ 2018-05-02
SGX Stock Analyst Report BUY Maintain BUY 4.200 Same 4.200