CapitaLand - UOB Kay Hian 2018-05-02: 1Q18 Expect A Strong Second Half

CapitaLand - UOB Kay Hian 2018-05-02: 1Q18 Expect A Strong Second Half CAPITALAND LIMITED SGX: C31

CapitaLand - 1Q18 Expect A Strong Second Half

  • Management expects a strong recovery in Singapore residential property, while remaining cautiously optimistic on China property.
  • Management guided a positive outlook for Singapore office on improved occupancies and rent pick-up, but noted that the retail segment continues to be challenged.
  • Management seeks to deepen its footprint in the core markets of Singapore and China, but will look further in Vietnam and Indonesia.
  • Maintain BUY and target price of S$4.30.


Results in line with expectations. 

  • CapitaLand's 1Q18 net profit of S$319.1m was down 19% y-o-y, mainly due to the absence of the gain of S$160.9m from the sale of The Nassim in 1Q17, and partly mitigated by higher portfolio and revaluation gains (mainly from the divestment of 20 malls in China and a property investment in Vietnam) and write-back of provision for Victoria Park Villas and Bedok Residences in Singapore. 
  • Excluding exceptional items, 1Q18 operating PATMI increased by 25.0%, on the back of higher development profits in Singapore, as well as higher rental income from newly acquired or opened malls and offices in China, Japan, and Germany. 
  • Revenue increased 53.3% y-o-y to S$478.0m, due to higher contributions from development projects in Singapore and China, rental revenue from newly-acquired and opened properties, as well as the consolidation of revenue from CMT, CRCT and RCS Trust. 
  • The results are in line with expectations with 1Q18 operating PATMI of S$228.7m representing 24.6% of full-year estimates.


  • Management expects strong recovery in Singapore residential property, underpinned by overall positive economic performance and increased transaction volumes.1Q18 saw residential sales value in Singapore decline by 70.2% y-o-y to S$150m, with 40 units sold. Newly launched projects in Singapore saw strong demand with 98% of units sold; Marine Blue and Sky Habitat had 84% and 96% of units sold, respectively. The project launch on recently-acquired Pearl Bank Apartments through a private treaty collective sale for S$728m or S$1,515 psfppr is targeted for 1H19. We estimate a breakeven of about S$2,100-2,150 psf with selling expectations above S$2,450 psf.
  • Positive on Singapore office, but retail remains challenged. The optimism on Singapore office is supported by higher office occupancies for CBD, which rose 1.3% to 93.8% in Dec 17 as well as sustained pick-up in average monthly Grade-A office rent at S$9.40 psf (+3.3% q-o-q). The outlook for Singapore retail remains challenging, but management expects its portfolio of malls, which are well-connected to public transport network, and located in large population catchments and popular shopping destinations to remain resilient. The group intends to continue enhancing its existing portfolio, through third-party management contracts, capital reconstitution or AEIs.
  • China-heavy shopping mall pipeline. Of the 13 properties that are to be opened in 2018 and beyond, five of those properties will be located in China. Including properties in the pipeline, the number of Chinese malls in the portfolio is expected to increase to 69 from 61. Same-mall NPI growth. 1Q18 NPI increased for malls in Singapore (+1.3%) and China (+6.7%), but declined in Malaysia (-2.7%) and Japan (-5.0%).
  • Stable RevPAU for serviced residences. Total RevPAU for 1Q18 increased 5% y-o-y. The Gulf Region & India saw the sharpest decline with 1Q18 RevPAU declining by 16% y-o-y. Those declines were dampened by RevPAU y-o-y growth of 14% in Singapore, 13% in Europe, and 7% in China. Management plans to double Ascott’s portfolio to 160,000 units. With 72,000 units as at end-17, Ascott is on track to reach 80,000 units in 2018.
  • Cautious optimism on China property. Management noted that the property cooling measures implemented by Chinese government, mainly on Tier-1 and Tier-2 cities, are expected to cool the property market in China further in 2018 and restrict growth in home prices. China residential saw lower quarterly sales due to less units available for sale but expects higher revenue recognition over the next nine months. 1Q18 handover in terms of sales volume (units) was up by 9.3%, but handover value was down by 35.3% due to handover of projects with lower selling prices. In terms of future revenue recognition, another 15.1b in value will be recognised from 2Q18 onwards from the 8,000 units of Chinese residential property sold.
  • Focus markets. Management seeks to deepen its footprint in the core markets of Singapore and China, but will look to expand further in Vietnam and Indonesia.


  • Maintain BUY and target price of S$4.30, pegged at a 15% discount to our RNAV of S$5.06/share.


  • We retain our estimates.


  • Improving sentiment in core markets Singapore and China.
  • Relaxation of property cooling measures (Total Debt Servicing ratio etc.)

Vikrant Pandey UOB Kay Hian | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2018-05-02
SGX Stock Analyst Report BUY Maintain BUY 4.300 Same 4.300