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


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.

3Q19 results highlights

  • 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.

Robust China residential sales, more handovers in 4Q

  • 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.

Singapore residential segment to benefit from higher sales volume

  • 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.

Lowered gearing to 0.69x, S$5.2bn of divestments YTD

  • 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.

Maintain ADD

  • 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
SGX Stock Analyst Report ADD MAINTAIN ADD 4.150 SAME 4.150