CapitaLand - DBS Research 2019-01-03: Spreading Its Wings In Asia


CapitaLand - Spreading Its Wings In Asia

  • Acquires 9th Raffles City Development in China.
  • Recurring income streams to increase strongly in 2019.
  • Prospects of higher dividends to support prices.

Maintain BUY, Target Price S$3.62.

  • With the recent acquisition of a prime site in Shanghai, CAPITALAND LIMITED (SGX:C31) has been a net investor in 2018, deploying almost S$7bn of capital to projects which we believe will further boost the group’s recurring income streams. With its core retail business and development business in Singapore and China on an uptrend in 9M18, prospects appear bright.
  • A strong balance sheet with low gearing offers financial capacity to undertake opportunities. Our Target Price is based on a 25% discount to RNAV.

Where We Differ: Further potential for higher dividends which will surprise investors.

  • Despite deploying a net S$3bn in 2018 (invested S$7bn, divested S$4bn) we believe that the group has the financial resources to raise dividends further in FY18. This will come from the group’s increasing recurring income base from improving portfolio yields coupled with consistent recycling activities which will also boost ROEs.

Rebalancing its portfolio.

  • Management has articulated a strategy to maintain a 50%-50% exposure to developed markets (DM) and emerging markets (EM) which it believes will provide the right balance to better ride through market uncertainties and cycles.
  • Supported by a c.56% exposure to DM markets in 3Q18 offering steady returns (capital upside and income visibility), we believe that CapitaLand can look for projects in EM exposures to generate alpha and returns over time.


  • Our target price of S$3.62 is based on a 25% discount to our adjusted RNAV of S$4.83/share.

Key Risks to Our View:

  • Slowdown in Asian economies. The risk to our view is if there is a slowdown in Asian economies, especially China, which could dampen demand for housing and private consumption.

WHAT’S NEW - Spreading its wings in Asia Building the 9th Raffles City in China

  • CAPITALAND LIMITED (SGX:C31) through the Raffles City China Investment Partners III (RCCIP III) formed a 50%-50% joint venture (JV) with Singapore’s sovereign wealth Fund GIC to acquire Shanghai’s tallest twin towers for a consideration of RMB12.8bn (S$2.54bn).

  • Currently under development and will compete in phases from 2H19 onwards, the group will be able to achieve to recognise income fairly soon, which in our view will not be a drag on the balance sheet. When completed, the development will be the group’s 9th Raffles City development in China and 10th globally.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-01-03
SGX Stock Analyst Report BUY MAINTAIN BUY 3.620 SAME 3.620