CapitaLand Limited - OCBC Investment 2019-02-21: Beating Its KPIs Like A Boss


CapitaLand Limited - Beating Its KPIs Like A Boss

  • CapitaLand’s 4Q18 operating PATMI +26.1% y-o-y.
  • FY18 ROE of 9.3%.
  • DPS of 12 S cents.

4Q18 results slightly below expectations

  • CAPITALAND LIMITED (SGX:C31)’s 4Q18 results fell slightly short of our expectations.
  • 4Q18 revenue jumped 34.0% y-o-y to S$1,624.5m due largely to higher handover of units from residential projects in China and Vietnam, coupled with rental income from newly acquired and operational properties in its portfolio. PATMI grew 71.2% y-o-y to S$475.7m. After adjusting for revaluations, impairments, portfolio gains and realised fair value gains, CapitaLand’s operating PATMI rose 26.1% to S$213.8m.
  • For FY18, total revenue improved by 21.3% to S$5,602.4m, while PATMI was up 12.3% to S$1,762.5m. After adjustments, CapitaLand’s operating PATMI came in at S$872.2m, which was a decline of 5.9% and this formed 94.4% of our FY18 forecast.
  • If we exclude the gain from the sale of Nassim in 1Q17, FY18 operating PATMI would instead have grown 13.8%.

Real estate AUM crossed S$100b, earlier than targeted

  • For the full-year, management was active on capital recycling, having made divestments amounting to S$4.0b (target: S$3b). Proceeds were redeployed into S$6.1b of new investments.
  • FY18 ROE was 9.3% (target: at least 8%), higher as compared to the 8.6% registered in FY17. Its aim would be to maintain its ROE above its cost of equity on a sustainable basis, ideally at double-digit levels for the former.
  • A first and final DPS of 12 S cents was declared (payout ratio of 41% on cash PATMI), similar to FY17 and translates into a dividend yield of 3.5%.
  • CapitaLand's real estate AUM rose 12% to S$100.1b, as at end-2018, surpassing its target to hit S$100b by 2020.

Still positive on China notwithstanding headwinds

  • Although headwinds remain in China, CapitaLand continues to hold an optimistic view on the outlook of the residential market, especially on Tier-1 and selected Tier-2 cities. Its projects there are still able to command margins ranging around 10-30%.
  • Management highlighted that even if it were to sell its projects at the price cap level of each city, it will still be able to generate positive margins.
  • Back home, CapitaLand remains open to land bank replenishment opportunities, but only if the price is right.
  • After adjustments, we derive a slightly higher fair value estimate of S$3.98 (previously: S$3.96).

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2019-02-21
SGX Stock Analyst Report BUY MAINTAIN BUY 3.98 UP 3.960