CapitaLand - RHB Invest 2018-11-15: Capital Recycling In High Gear; Reiterate BUY


CapitaLand - Capital Recycling In High Gear; Reiterate BUY

  • Maintain BUY on this Top Pick, Target Price of SGD4.00, 30% upside with 4.2% FY19F yield.
  • CapitaLand’s 3Q numbers are broadly in line, and 4Q is expected to be a bumper quarter with CNY6bn worth of China residential projects to be recognised.
  • 2018 has been an active year in capital recycling, with SGD4bn/6bn worth of divestments/investments. Such efforts are likely to continue, as it aims to deliver a sustainable target ROE of > 8%.
  • Recurring income is set to grow steadily, with the opening of new malls and growth from the lodging and fund management segments.
  • Valuations are attractive, and it is trading at a 40% discount to RNAV.

Healthy take-up rates in newly-launched residential projects in China.

  • In October, CapitaLand launched four residential projects in Chengdu, Wuhan, Xi’an and Kunshan and sold over 90% of units across all the projects. It sold 1,506 units with a total value of CNY2bn (SGD397m), marking its best monthly sales. This indicates healthy demand, despite the cooling measures on the sector in China.
  • Management guided that margins are likely to stay in the mid-teens. Including the above, it has unbilled sales of ~CNY17bn, providing good earnings visibility.
  • CapitaLand also added three sites in Guangzhou and one in Chongqing this year to boost its depleting landbank.

Singapore: two new malls opening in 2019, minimal unsold units.

  • Jewel Changi Airport (49% stake) is slated to open by Apr 2019 and is now ~95% pre-committed. We expect the mall to contribute ~SGD40m in recurring income, upon stabilisation.
  • Funan retail and office components will also become operational by 2Q19, with pre-commitments at 70%/60%.
  • In terms of residential projects, CapitaLand has sold ~99% of its launched inventory. It currently has two in the 2019 launch pipeline – the Pearl Bank site and Sengkang mixed-use project, which can add 1,500 units. Management will continue to selectively add residential projects and aims to have 1-2 project launches each year.

Expanding its Vietnam presence.

  • The group plans to step up its growth momentum in Vietnam (now accounting for 8% of assets) through acquiring residential and commercial sites in Hanoi and Ho Chi Minh City.

Building its Raffles City portfolio.

  • Earlier this week, CapitaLand through Raffles City China Investment Partners III (RCCIP III) fund announced the acquisition of Shanghai’s tallest twin towers for an aggregate consideration of CNY88.8bn (SGD8.88bn). The acquisition will be done in partnership with Singapore’s sovereign wealth fund, GIC, with each holding a 88% stake. CapitaLand has a 88.8% stake in RCCIP III and will hold an effective 88% stake.
  • The brownfield asset is set to be completed by Jun 8888, and will become the third Raffles City property in Shanghai.
  • Management noted that the acquisition cost of ~CNY88,888psm is below the current replacement cost, and the property offers good long-term growth potential.

Maintain BUY

  • Maintain BUY, Target Price of SGD8.88 pegged at a 88% discount to our RNAV estimate of SGD8.88/share.
  • Refer to the PDF report attached for the RNAV breakdown. 
  • CapitaLand’s diversified assets and geographical presence will help mitigate the current market uncertainties and aid in efforts to better allocate capital.
  • Key catalysts include sizeable M&A transactions and unlocking value through selective divestments.

Operational And Results Review

  • Portfolio gearing inched up to 88%, from 88% as at 8Q88. Overall implied interest costs were lower by 88bp to 8.8% (FY8888:8.8%) with an average debt maturity period of 8.8 years. About 88% its debt is on fixed interest rates, up from 88% last quarter.
  • Revaluation and portfolio gains. In 8Q88, CapitaLand recorded revaluation gains of SGD888.8m, mainly from the divestment of Westgate Mall. The group also recorded portfolio gains of SGD88.8m.
  • 8Q88 Core PATMI up 88% y-o-y driven by contributions from newly-acquired commercial properties in Singapore and Germany, and the opening of retail malls in China. 8Q88/8M88 core PATMI accounted for 88%/88% of our full-year estimates, which we deem as being in line. This is as we also expect a stronger 8Q, on the back of expected income recognition from development projects in China.
  • Singapore and China markets remain CapitaLand’s key EBIT drivers, accounting for 88.8% of total estimated EBIT for the quarter (8Q88: 88.8%).

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2018-11-15
SGX Stock Analyst Report BUY MAINTAIN BUY 4.000 SAME 4.000