CAPITALAND LIMITED (SGX:C31)
CapitaLand - Active Efforts To Boost ROEs
- Maintain BUY, Target Price of SGD4.00 offers 27% upside and 4.1% FY19F yield.
- We like CapitaLand for its steady build-up in recurring income and diversified geographical/asset class exposure. Management has been active in capital recycling to deliver returns in 2018, and we expect this to continue in 2019.
- Despite policy measures, sales across its China residential projects have been steady, providing good earnings visibility. Its balance sheet remains healthy, with gearing at 0.5x.
- Its valuation is attractive, and the stock is trading at a ~40% discount to RNAV.
Capital recycling likely to continue in 2019.
- 2018 has been an active year for CapitaLand, in terms of capital recycling - with SGD4bn/6bn worth of divestments/investments (as of Nov 2018). Such efforts are likely to continue, as it aims to deliver on its sustainable ROE target of > 8%.
- Overall, the group is well on track to achieve its total assets under management (AUM) target of SGD100bn by 2020 (currently ~SG95bn). Investment properties are targeted to account for 80% of income, and development properties will be expected to represent the remainder of income.
China residential sales remain healthy.
- CapitaLand recently (Oct 2018) launched four residential projects in Chengdu, Wuhan, Xi’an and Kunshan – selling over 90% of units across all the projects. The four launches resulted in 1,506 units being sold, at a total of CNY2bn (SGD397m). This marks its best monthly sales figure, and points to healthy demand despite the cooling measures from the Central Government.
- Management guided that margins are likely to stay in the mid-teens. Including the above projects, CapitaLand should have unbilled sales of > CNY10bn for 2019F, providing good earnings visibility.
- We also expect it to acquire 2-3 in China in 2019 to replenish its landbank.
In Singapore, recurring income to grow further.
- Jewel Changi Airport (49% stake) is slated to open in 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% and 60%.
- For residential projects, CapitaLand has sold ~99% of its launched inventory. In 2019, it expects to launch the Pearl Bank site and Sengkang mixed-use site, which can add 1,500 units. Management will continue to selectively add residential sites if the right opportunity arises.
Maintain BUY
- Maintain BUY, Target Price of SGD4.00 pegged at a 20% discount to our RNAV estimate of SGD5.00/share.
- CapitaLand’s diversified asset and geographical presence will help mitigate the current market uncertainties and aid in efforts to better allocate capital.
- Key catalysts include sizeable M&As and unlocking value through selective divestments.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2018-12-14
SGX Stock
Analyst Report
4.000
SAME
4.000
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