CapitaLand - OCBC Investment 2019-11-06: Fast & Furious On Capital Recycling


CapitaLand - Fast & Furious On Capital Recycling

  • Maiden contribution from Ascendas-Singbridge.
  • Net gearing ratio declined to 0.69x.
  • Higher Fair Value of S$4.42.

3Q19 operating PATMI grew 18.8% y-o-y

  • CAPITALAND LIMITED (SGX:C31) reported its 3Q19 results which were in-line with our expectations.
  • Revenue and EBIT jumped 37.1% and 30.2% y-o-y to S$1,727.8m and S$1,073.3m, respectively. This was driven by the maiden contribution from Ascendas-Singbridge (ASB), higher contributions from residential projects in China and fee income from Vietnam. See Capitaland Announcements.
  • PATMI fell 7.8% y-o-y to S$333.9m in the absence of a one-time gain of S$99.2m from the divestment of Westgate to CapitaLand Mall Trust in 3Q18. Excluding this, CapitaLand’s operating PATMI rose 18.8% y-o-y to S$277.6m, and this formed 30.1% of our full-year forecast.

Robust capital recycling a boost to ROE and deleveraging efforts

  • Notably, CapitaLand has announced S$5.3b of divestments this year (up till 1 Nov), far exceeding its annual S$3b target and also ahead of 2018’s full-year S$4.0b figure. This has allowed CapitaLand to bring its net gearing down further from 0.73x (end-2Q19) to 0.69x, and puts the group in a good stead to achieve its 0.64x net gearing target earlier than its stated timeline (end-2020).
  • CapitaLand’s active capital recycling has also helped drive its ROE, which came in at 5.8% for 9M19. Its fee income from its REITs and funds platform grew 34.6% y-o-y to S$86.8m, thus strengthening its recurring income streams.
  • Post the Ascendas-Singbridge merger, CapitaLand also stated that it has a target to grow its AUM in India, one of its new core markets, to S$7b by 2024, from ~S$3b in 2019.

Resilient residential markets in Singapore and China

  • In 3Q19, CapitaLand achieved S$342m worth of residential sales in Singapore, which was 7.3x that of 3Q18; in China, residential sales value fell 20.1% y-o-y to RMB2.1b in 3Q19, but was up 13.2% to RMB8.5b for 9M19. Management expects to hand over ~6.5k units (~RMB16.1b) sold previously from 4Q19 onwards, of which ~30% of this value is expected to be recognised in 4Q19.
  • The recovery in the Singapore residential market, coupled with CapitaLand’s strong product offerings, resulted in firm sell-through rates for its Sengkang Grand Residences (216 units sold out of 280 units launched at ASP of S$1,700k psf) and One Pearl Bank (235 units sold out of 280 units launched at ASP of S$2,384 psf) projects.
  • The Chinese property market has also been more resilient than market expectations, in our opinion.
  • Given that these are CapitaLand’s two largest markets, we lower our RNAV discount from 20% to 15% and lift our fair value from S$4.04 to S$4.42. See Capitaland Share Price; Capitaland Target Price.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-06
SGX Stock Analyst Report BUY MAINTAIN BUY 4.42 UP 4.040