CapitaLand - UOB Kay Hian 2018-11-15: 3Q18 Seeing Momentum In China

CAPITALAND LIMITED (SGX:C31) | SGinvestors.io CAPITALAND LIMITED (SGX:C31)

CapitaLand - 3Q18: Seeing Momentum In China

  • CapitaLand, through its 41.7% stake in its RCCIP III fund, partnered with GIC via a 50:50 JV to acquire Shanghai’s tallest twin tower. The group also saw momentum building for its residential sales in China, where it held four residential launches selling 1,506 units (S$396.7m) in the past month.
  • CapitaLand also expanded strategically into Multifamily asset class in the US. 
  • Maintain BUY with unchanged target price of S$3.78.



3Q18 RESULTS


Results in line with expectations.

  • CapitaLand’s (CAPL) 3Q18 net profit of S$362.2m was up 13.6% y-o-y, due to higher operating PATMI (attributable to contributions from newly acquired and opened investment properties in Singapore, China, and Germany) and gains from asset recycling.
  • Excluding exceptional items (gains from the sale of The Nassim), 9M18 operating net profit grew 10.3% y-o-y (or S$61.7m) on the back of higher recurring income from retail and commercial businesses, partially offset by lower contributions from development projects in Singapore and China.
  • Revenue declined 16.9% y-o-y to S$255.6m in 3Q18, due to lower contributions from development projects in Singapore and China, partially mitigated by higher rental income from newly acquired and opened properties, contributions from CapitaLand Mall Trust (SGX:C38U), CapitaLand Retail China Trust (SGX:AU8U), and RCS sults are in line with expectations with 9M18 rating net profit of S$658.4m representing 73.3% of our full-year estimate.

Net gearing inched up to 0.51x


  • (2Q18: 0.50x) with average debt maturity at 3.4 years (2Q18: 3.4 years). The group also maintained its proportion of fixed-rate financing high at 74% (+1bps q-o-q) in view of rising interest rates.
  • The group’s NTA per share was S$4.34 as at end-Sep 18 (2Q18: S$4.39).


STOCK IMPACT


Group AUM of S$92.8b; on track to reach S$100b by 2020.

  • Ytd, CapitaLand has divested over S$8b of assets, and deployed over S$8.8b in new investments (including acquisitions to secure development pipeline, and higher yielding assets which are immediately income producing). In 8Q88, the group acquired a mixed-use site at Seng Kang Central in Singapore, two prime residential sites in GuangZhou, China (estimated to yield 8,888 units), and a prime site in District 8 of Ho Chi Minh City, Vietnam (estimated to yield 888 landed units).
  • The group has also expanded strategically into a new multifamily asset class in the US, which will strengthen its recurring income and diversify its global presence.
  • The acquisitions take into account their targeted allocation of 88%/88% (vs current 88.8%/88.8%) between emerging vs developed markets, and 88%/88% (vs current 88%/88%) between trading properties vs investment properties.

Slowdown in residential sales in Singapore.

  • 8M88 saw residential sales value in Singapore decline 88% y-o-y to $888m. The gross number of residential units sold in 8M88 declined to 88 units (vs 888 in 8M88).
  • Newly launched projects in Singapore saw strong demand with 88% of units sold.

China residential sales saw record Rmb2b (S$396.7m) for 1,506 units in the past month,

  • which coincided with the 8888 Golden September Silver October (ie China’s traditional high season for new home sales). The group held four successful residential launches in the past month, which saw Parc Botanica 888% sold for all 888 units for Rmb888m, The Lakeside in Wuhan sold about 88% of the 888 units for Rmb888m, La Botanica in Xi’an sold 88% of the 888 units for Rmb888m, and The Metropolis in Kunshan sold over 88% of the 888 units for Rmb888m.
  • The group still has a pipeline of around 8,888 units ready for launch in the next six months, based on market conditions.

China’s heavy shopping mall pipeline.

  • Including properties in the pipeline, the number of Chinese malls in the portfolio is expected to increase to 88 (from 88 as at end-8Q88). In 8Q88, the group expects to open CapitaMall Tiangongyuan, Beijing (GFA of 888,888 sqm) with a committed occupancy of 88% (amongst them, 88% are new-to-market, or flagship stores).
  • In 8M88, NPI for malls increased in Singapore (+8.8%) and China (+8.8%), but declined in Malaysia (-8.8%) and Japan (-8.8%).

Focus markets.

  • Management seeks to deepen its footprint in the core markets of China, Vietnam, and Singapore where the group has strong local knowledge.

Acquisition of Shanghai's tallest twin towers for Rmb12.8b (S$2.54b).

  • CapitaLand, through Raffles City China Investment Partners III (RCCIP III) with its 88.8% stake, has formed a 88:88 JV with GIC to acquire Shanghai's tallest twin tower.

Attractive transacted price of Rmb12.8b (S$2.54b)

  • is attractive, which is below replacement cost, based on recent land transactions in the vicinity. The development has achieved structural completion, and is expected to open from 8H88 in phases (and start contributing to the group's recurring income).
  • Funding mix will comprise a combination of debt and equity.

Mixed-use integrated development along Huangpu River in North Bund.

  • Situated on a 8.88 ha site in North Bund CBD, the integrated development has a GFA (excluding the carpark) of 888,888sqm, comprising two 88-storey premium Grade-A office towers (888,888 sqm in GFA) linked at the base by a seven-storey shopping mall (888,888 sqm). The development is also linked to Line 88 and upcoming Line 88, two major metro lines with the highest number of interchange stations. The North Bund CBD is an extension of the core CBD, in close proximity to both Puxi and Pudong CBDs.
  • North Bund is well-positioned to absorb spillover demand, and has seen office rents outperform average Shanghai growth rate ytd 8888.


VALUATION/RECOMMENDATION

  • Maintain BUY with an unchanged target price of S$8.88, pegged at a 88% discount to our RNAV of S$8.88/share.


EARNINGS REVISION

  • Our net profit estimates are under review, pending more detailed analysis on the recent US$888m (S$8.88b) acquisitions of 88 FH multi-family portfolio.


SHARE PRICE CATALYSTS

  • Improving sentiment in core markets Singapore and China.
  • Accretive M&A in building up AUM, and recurrent earnings.





Andrew Chow CFA UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2018-11-15
SGX Stock Analyst Report BUY MAINTAIN BUY 3.780 SAME 3.780



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