CapitaLand - CGS-CIMB Research 2019-11-29: Focus On Growth


CapitaLand - Focus On Growth

  • CapitaLand reiterated its growth-oriented focus with an expanded portfolio.
  • Targets double-digit ROE across cycles as it grows its fee income base.
  • Maintain ADD with an unchanged Target Price of S$4.15.

Highlights from Investor Day

  • During its Investor Day, CAPITALAND (SGX:C31) reiterated its growth-oriented focus and targets to deliver double-digit ROE across property cycles, to be achieved via development growth engines across its core markets of Singapore, China, India and Vietnam, focus on global fund management and lodging businesses, and capital deployment.
  • See CapitaLand Announcements; CapitaLand Latest News.

Sustainable competitive edges with an expanded portfolio

  • CapitaLand has sustainable competitive advantages within its four core markets. In China, in addition to its existing retail and residential operations, its new business park, industrial and logistics portfolio further differentiate it from its peers.
  • Meanwhile, strong urbanisation trends in Vietnam and India will enable it to seize opportunities in township and commercial developments as well as leverage on its industrial and logistics real estate capabilities in India.
  • In Singapore, it would look for precinct-wide rejuvenation opportunities. CapitaLand continues to maintain a 50/50 developed/emerging market capital allocation exposure.

Targets to deliver double-digit ROE across cycles

  • In 9M19, CapitaLand had achieved an ROE of 5.8% which came from operating PATMI from investment properties (2.5% pts), realised portfolio gains and revaluations (2.7% pts), and residential operations (0.6% pt). As it continues to adopt an efficient capital management strategy, and review investment opportunities against its cost of capital and adopt disciplined capital recycling, we believe the group will move closer to achieving its objective of double-digit ROE across cycles.
  • CapitaLand has locked in gross divestments of S$5.9bn YTD and released S$2.9bn of capital. Net debt-to-equity ratio declined to 0.69x at end-3Q19 and appears on track to meet its 0.64x target by end-2020 – the latter translates into a debt headroom of S$2.3bn, assuming net debt-to-equity of 0.7x.

Growing high-margin fee income business

  • CapitaLand’s funds under management (FUM) are at S$71.7bn currently, ranking it ninth-largest globally. It intends to grow its fund AUM to S$100m by 2024. This will continue to uplift its fee income which made up 5% of 3Q19 group revenue towards a target of 10%.
  • In addition, CapitaLand is also expanding its high ROE and capital efficient global lodging platform. It derived S$182.1m of fee income for 9M19 from this platform from c.67,000 of operational units. On top of another c.45,000 units under development, it is planning to add c.47,000 to its pipeline to reach 160,000 units under management by 2023.

Maintain ADD

  • We maintain an ADD rating with a Target Price of S$4.15. See CapitaLand Share Price; CapitaLand Target Price. See attached PDF report for CapitaLand's RNAV breakdown details.
  • Re-rating catalysts would continue to come from accelerating growth across its expanded platform and asset recycling activities.
  • Downside risks include slower macro outlook that could lead to slower recycling activities and integration execution risks.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-29
SGX Stock Analyst Report ADD MAINTAIN ADD 4.150 SAME 4.150