CapitaLand - RHB Invest 2018-08-23: Active Capital Recycling Efforts To Continue; BUY!

CapitaLand - RHB Securities Research 2018-08-23: Active Capital Recycling Efforts To Continue; Buy CAPITALAND LIMITED SGX:C31

CapitaLand - Active Capital Recycling Efforts To Continue; BUY!

  • Maintain BUY with a slightly higher Target Price of SGD4.00 from SGD3.95, with 20% upside.
  • CapitaLand’s recent acquisitions in Singapore and China demonstrate its continued efforts to recycle capital and rebalance its portfolio mix. The active capital recycling strategy plus the steady build- up in recurring income should help in its efforts to boost ROE.
  • Balance sheet remains healthy with gearing at 0.5x, and 73% of its debt is fixed.
  • CapitaLand's share price remains well supported by dividend yields of 4% and continued share buybacks. It is our Top Pick among property large caps.

Acquires Sengkang Central mixed-use site in partnership with City Developments (50% stake).

~ SGinvestors.io ~ Where SG investors share
  • The winning tender of SGD777.8m or SGD 923.6psf ppr was chosen on the basis of the two-envelope concept and price revenue tender system. The new non-remittable and revised additional buyer’s stamp duty (ABSD) charges do not apply here, as the tender closed (21 Jun) before the latest cooling measures. The mixed development site will have direct access to Buangkok MRT station and the future bus interchange.
  • We remain positive on the acquisition as we believe integrated developments are one of the core competencies of JV partners, considering past track records. Assuming an 80:20 mix for residential/commercial components, we estimate blended ASP of ~SGD1,700psf, translating into net margin of ~13%.

Replenishing its China landbank.

  • Last week, CapitaLand announced the award of two prime residential sites in Guangzhou for CNY2.05bn (about SGD409.3m). The sites can yield about 1,300 units and comes close on the heels of the Chongqing site acquisition in June.
  • We estimate high-teen margins for the redevelopment based on our ASP assumptions of CNY27,000psm. With expected handover of more than 8,000 units from 3Q18 (~CNY16.2bn in value), the move is a timely replenishment of its landbank.

Focus on capital recycling efforts to boost ROE.

  • YTD, CapitaLand has divested about SGD3.1bn worth of assets (exceeding target of SGD3bn pa) and made investments worth ~SGD2.6bn, including the latest acquisitions. Management noted during a recent briefing that it is in a good financial position to capitalise on any opportunities arising from the recent cooling measures.
  • Overall, CapitaLand aims to grow its total assets under management (AUM) to SGD100bn by 2020 (now SG93.1bn), with a balanced asset mix from emerging and developed markets. Investment properties are targeted to account for 80% of its income, with development properties accounting for the rest.

Dividend yield of ~4%; share buyback resumes post 1H18 results.

  • About 3.5m shares were repurchased over the past week. YTD, we calculate that it has bought back ~86m shares. (See: Latest Share BuyBack Transactions)
  • The share buybacks are NAV-accretive and should boost ROE, as shares were bought back at ~10-25% discount to its book value.

CapitaLand remains our large-cap Top BUY, with Target Price fine-tuned to SGD4.00.

  • We include earnings contribution from the recent acquisitions into our model, resulting in 1% uplift in RNAV to SGD5.00. Our Target Price is pegged at 20% discount to RNAV to factor in policy risks and volatile global macroeconomic conditions.
  • Key catalysts include sizeable M&A and unlocking value through selective divestments.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-08-23
SGX Stock Analyst Report BUY Maintain BUY 4.00 Up 3.950