CapitaLand - CGS-CIMB Research 2018-11-14: Operationally Stronger


CapitaLand - Operationally Stronger

  • We deem CapitaLand's 3Q/9M results broadly in line at 21%/59% of our FY18 forecast.
  • We expect stronger 4Q on the back of high China residential handover.
  • Maintain ADD. Our S$3.55 Target Price is based on a 35% discount to RNAV.

3Q18 results highlights

  • CapitaLand reported PATMI of S$362.2m, +13.6% y-o-y, on a 17% decline in revenue to S$1.26bn. Stripping out divestment and fair value gains, core PATMI would have been S$233.7m, +13.3% y-o-y.
  • The operating performance was largely lifted by contributions from newly acquired/opened properties in Singapore, China and Germany.
  • 3Q/9M EPS made up 21%/59% of our FY18 forecast, which we deem broadly in line, in anticipation of stronger China residential earnings in 4Q.
  • CapitaLand has achieved a 9M18 ROE of 6.9%, and looks well positioned to reach its annual target of 8%.

Expect strong 4Q

  • In China, CapitaLand handed over 1,279 units valued at Rmb2.1bn and sold an additional 826 units worth at Rmb2.6bn, mainly in Xian, Kunshan, Wuhan and Chengdu. It has locked in Rmb15.9bn pre-sales at end-3Q18. Of this, 40% is expected to be handed over in 4Q18, equivalent to its 9M achievement. CapitaLand plans to launch 3,472 units in 4Q.
  • Recurrent rental income from its shopping mall portfolio continues to be supported by a 1.3% y-o-y improvement in tenant sales and 1.3% y-o-y rise in shopper traffic.

Replenished Singapore inventory

  • In Singapore, CapitaLand sold 14 residential units in 3Q valued at S$52m.
  • CapitaLand has replenished its development pipeline with the purchase of the Pearl Bank Apartments enbloc site and a 50:50 JV for the Sengkang Central mixed use parcel. The former is expected to be launched in 2Q19.
  • In Vietnam, CapitaLand has locked in S$712m pre-sales of which c.10% is expected to be recognised in 4Q18.

Strong capital re-deployment

  • The group has divested S$8bn of assets YTD and redeployed capital into S$8.8bn of new investments, spread over Singapore, China and the US. Total AUM has grown to S$88.8bn at end-8Q, and appears well on track to reach its 8888 target of S$888bn.
  • CapitaLand maintains its stance of having a 88/88 emerging/developed market exposure (8Q88: 88%/88%) as well as 88/88 trading/recurrent income split. This should provide the group with strong recurrent income base and earnings visibility.

Maintain ADD

  • Our FY88-88 EPS estimates and Target Price of S$8.88 are intact. Our Target Price of S$8.88 is pegged to a 88% discount to RNAV.
  • Given its strong balance sheet and net debt to equity ratio of 8.88x, we think the group has significant headroom to grow its AUM.
  • Potential catalysts include faster-than-expected pace of re-investment while downside risks to our call are a slowdown in pace of capital deployment or rate of investment returns.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-14
SGX Stock Analyst Report ADD MAINTAIN ADD 3.550 SAME 3.550