CapitaLand - OCBC Investment 2019-08-08: Keeping Its Focus


CapitaLand - Keeping Its Focus

  • CapitaLand (SGX:C31)'s 2Q19 operating PATMI fell 8.4% y-o-y.
  • Committed to its deleveraging target.
  • Higher handover of China residential projects in 2H19.

2Q19 results below expectations

  • CAPITALAND LIMITED (SGX:C31) reported its 2Q19 results which missed ours and the street’s expectations.
  • Revenue declined 19.3% y-o-y to S$1,082.8m due largely to lower contributions from its residential projects in Singapore and China, but partially offset by contribution from acquisitions mainly from US and Europe.
  • PATMI fell 4.2% y-o-y to S$579.8m, due largely to one-off transaction costs incurred on the acquisition of Ascendas-Singbridge (ASB). Excluding these, PATMI would have increased 1.7% y-o-y. Operating PATMI in 2Q19 came in at S$179.5m, a dip of 8.4% y-o-y and this accounted for 19.5% of our FY19 forecast.
  • For 1H19, CapitaLand’s revenue fell 21.6% to S$2,131.1m while operating PATMI slipped 14.9% to S$361.3m.

Healthy capital recycling pace to aid deleveraging timeframe

  • CapitaLand has continued to actively recycle its capital, with S$3.4b of divestments announced YTD (up till 6 Aug), of which S$2.1b was divested to its sponsored REITs and funds, a reflection of its robust business model. The total divestment amount has already exceeded CapitaLand’s annual asset recycling target of S$3b.
  • CapitaLand’s net gearing increased from 0.56x (end-FY18) to 0.73x after completion of the ASB deal. Management highlighted that it was confident of reaching its net gearing target of 0.64x by end-2020, and acknowledged that it was possible that it may reach this target ahead of schedule. Of the S$3.4b worth of divestments announced, ~S$1.2b has been completed as at 30 Jun 2019, which implies that the bulk of the net proceeds have yet to come in.

Likely a backend loaded year

  • In China, CapitaLand sold 1,807 residential units in 2Q19 with a total sales value of RMB3.85b. This represents y-o-y growth of 142.2% and 19.1%, respectively. Sell-through rate was high, with 93% of launched units sold, as at 30 Jun 2019. ~3.1k units are ready to be launched across eight cities in 2H19.
  • In terms of earnings recognition, 7.3k residential units worth RMB18.3b which were sold in China previously are expected to be handed over from 3Q19, of which ~50% of the value is expected to be recognised in 2H19. This implies a backend loaded year as RMB3.45b of pre-sales was handed over in 1H19.
  • We maintain our S$4.04 fair value estimate for now.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-08-08
SGX Stock Analyst Report BUY MAINTAIN BUY 4.040 SAME 4.040