CapitaLand - CGS-CIMB Research 2019-11-05: Scaling Up

CAPITALAND LIMITED (SGX:C31)

CapitaLand - Scaling Up

CapitaLand's 3Q/9M19 core EPS of 5.5/14.2 Scts was broadly within our expectations at 24%/61% of our FY19 forecast.
China residential, US multifamily contributions and higher fee income lifted CapitaLand’s 3Q19 performance.
We maintain our ADD call with a Target Price of S$4.15.

CAPITALAND (SGX:C31) reported 37.1% y-o-y increase in topline to S$1.73bn with a full quarter’s inclusion of Ascendas-Singbridge (ASB) contributions. However, PATMI dipped 7.8% y-o-y largely due to a one-off ASB transaction cost of S$36m. Core PATMI was 18.8% higher y-o-y to S$277.6m. See Capitaland Announcements.
Apart from the S$35m additional core operating PATMI from ASB, other earnings growth drivers came from higher China development revenue, contributions from the US multi-family portfolio and higher fee income from an enlarged AUM base.
3Q/9M core EPS was broadly in line, at 24%/61% of our FY19 forecast.

China operations benefited from a higher handover of residential sales of Rmb2.78bn, increased NPI from its retail malls as well as rental contributions from business parks and industrial/logistics properties.
Looking ahead, residential sales continue to be strong with Rmb16.1bn worth of locked-in pre-sales, of which Rmb4.8bn is expected to be recognised in 4Q. Tenant sales and shopper traffic at its malls remain relatively robust, growing at 3.9%/5.7% respectively.

In Singapore, it sold a total of 451 units from new launches such as One Pearl Bank and Sengkang Grand Residences and has locked in S$365m worth of new sales for 9M19.
Continued take up of these projects should bolster residential contributions. This was partly moderated by lower handover of residential sales in Vietnam.
Its malls business in Singapore and Malaysia enjoyed tenants’ sales growth of 1.8-4.7%. India operations contributed an S$3.9m EBIT in 3Q.
CapitaLand aims to double the AUM to S$7bn and increase commercial space to 40m sq ft in key markets in India by 2024.

Gearing declined to 0.69x as at end-3Q19 and appears on track to reach its 0.64x target by end-2020. ROE achieved YTD stands at 5.8%.
CapitaLand has divested S$5.2bn worth of assets YTD. It recently announced the divestment of S$1.66bn worth of business parks in the US and Singapore to Ascendas REIT (SGX:A17U). The exercise is expected to be completed in 4Q19 and generate a net divestment gain of S$94m.
We anticipate the group to continue to look for opportunities to trim non-core assets, extract value from existing properties or recycle assets into its REITs and fund platforms.

We tweak our FY20-21F EPS marginally post results and maintain our Target Price of S$4.15, based on a 35% discount to RNAV. See Capitaland Share Price; Capitaland Target Price.
Re-rating catalyst would come from accelerating growth across its expanded platform while downside risks include a slower macro outlook that could lead to slower recycling activities.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-05

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