CapitaLand - OCBC Investment 2018-12-05: Proactive Capital Recycling To Unlock Value

CAPITALAND LIMITED (SGX:C31)

CapitaLand - Proactive Capital Recycling To Unlock Value

We like CapitaLand for its proactive capital recycling initiatives to unlock value for its shareholders. Management has been productive on reconstituting its portfolio, having announced total investments of S$6.1b YTD. This has been partially balanced by divestments amounting to S$4.0b, which generated gains of S$288.7m.
Some of the investments include the acquisition of 16 freehold multifamily properties in the U.S. for S$1.14b, joint acquisition of its third Raffles City integrated development in Shanghai (21% effective stake) with GIC and two prime residential sites in Guangzhou.
Looking ahead, CapitaLand has close to 3.5k residential units which are ready to be released in China in 4Q18. It also expects to recognise ~RMB6.4b of revenue (100% basis) from China in 4Q18, which is significant given that 9M18 value recognised was RMB6.2b.

Given CapitaLand’s significant exposure to the Chinese market, we believe it will benefit from the progress between the U.S. and China to ameliorate their trade differences.
While there are some concerns on whether an agreement can be struck, we believe the situation has improved as compared to a few months back. There is also growing optimism that China will look at further stimulus measures in 2019 to spur her economy.

Given CapitaLand’s active capital recycling strategy and continued efforts to boost the value of its properties, it generated ROE of 6.9% for 9M18 (annualised ~9.2%). This puts it well on track to deliver its annual ROE target of at least 8%.
CapitaLand’s balance sheet also remains strong, with a net gearing ratio of 0.51x.
Our fair value estimate on CapitaLand currently stands at S$3.96, which is based on a 20% RNAV discount applied.

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-12-05

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