CapitaLand - RHB Invest 2018-07-23: Recent Cooling Measures – Minimal Impact

CapitaLand - RHB Securities Research 2018-07-23: Recent Cooling Measures – Minimal Impact CAPITALAND LIMITED SGX:C31

CapitaLand - Recent Cooling Measures – Minimal Impact

  • Maintain BUY with new SGD3.95 Target Price from SGD4.25, 24% upside.
  • Among big-cap developers, CapitaLand has the least exposure to Singapore’s residential segment and is likely to see minimal impact from latest cooling measures.
  • We expect sales from China projects to remain steady in 2H18. It also has CNY15.1bn in unbilled revenue from residential projects, which should boost earnings. It should benefit from continued build-up in recurring income base – eight malls opened last year – and higher fee income.

Domestic residential segment accounts for ~4% of our RNAV estimates.

  • CapitaLand has already sold a land cost of SGD1,515psf in February and – considering the site’s attractive location benefits and limited new launches expected in the area – we believe 5-10% margin is still achievable for this project.

China residential market remains resilient.

  • The firm is expected to progressively hand > 8,000 units in China in 2018-2019 and has unbilled earnings recognition of CNY15.1bn to recognise. Our Hong Kong Research team reiterated in the 12 Jul report Secular Growth Story Continues that China’s property sales momentum is expected to continue in 2H18.
  • While there are concerns over liquidity and rising funding costs, we believe this should not impact developers with healthy balance sheet – rather, it provides them with an opportunity to do distressed acquisitions.

Boosting recurring income segment

  • CapitaLand has been steadily boosting recurring income segment by rapidly growing serviced residence business, opening new malls and undertaking mall management contracts, and beefing up fund management wing.
  • Serviced residence platform – Ascott – has been growing ~50%. The REITs/fund management fees in 1Q18 amounted to SGD57.8m, or ~18% of total PATMI.

Dividend yields of 4% and share buyback programmes lend support to share price.

  • YTD, CapitaLand has bought back 57.6m of own shares RNAV.

CapitaLand remains our large-cap Top BUY with new SGD3.95 Target Price.

  • This is pegged at 20% discount, from 15% to our revised RNAV estimate of SGD4.88. The higher discount factors in higher policy risks and global uncertainties.
  • Key catalysts include sizeable M&A transactions and unlocking value through selective divestments. Prolonged real estate downturns in core markets is a key risk to our call.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-07-23
SGX Stock Analyst Report BUY Maintain BUY 3.95 Down 4.250