CapitaLand - RHB Invest 2020-02-27: Delivering On Its Targets; BUY


CapitaLand - Delivering On Its Targets; BUY

  • Maintain BUY and Target Price of SGD4.20, 14% upside plus c.4% yield.
  • CapitaLand (SGX:C31)'s FY19 core PATMI was in line with Street but slightly ahead of ours. Despite market challenges, CapitaLand achieved overall 2019 ROE of 10%, and remains confident of hitting its 8-12% pa target.
  • While the COVID-19 outbreak poses near-term operational challenges, we believe it is well prepared to tide through with a well-diversified income stream and proactive management team.
  • Our Target Price is based on a 20% discount to RNAV.

COVID-19 – operations improving after initial sharp fall.

  • In Singapore, shopper traffic has now returned to 95% of pre-crisis levels, while in China, mall footfall has rebounded by 40-50% from the trough. About 12 retail malls in China remain closed due to government measures. Management has rolled out various measures to support tenants in its malls, including rent rebates, increased marketing efforts and shorter operating hours to buffer the impact. We estimate c.SGD20-50m capital outlay for the above, and this is unlikely to have a significant impact on its bottomline.
  • For lodging business, occupancy remains respectable at c.70% in Singapore and China Tier-1 cities as the corporate segment remains resilient. Residential sales (China) for February are expected to take a sharp hit due to the closure of show flats, but demand has since surged post recent reopening of some of its show flats.

Gearing lowered to 0.63x – ready to pounce on opportunities.

  • Aided by healthy revaluation gains and divestments, CapitaLand’s gearing now stands healthy at 0.63x (0.56x excluding REITs & business trust) from 0.73x post Ascendas Singbridge acquisition.
  • No changes in its 50:50 emerging and developed markets capital allocation strategy, with China and Singapore remaining its two large markets.
  • In Singapore, a key area of focus is likely to be asset rejuvenation with plans underway for Liang Court, Bugis assets, and it is currently studying more such opportunities. We also expect the company to accelerate its investments in India and Vietnam.

Capital recycling and fund management remain key ROE drivers.

  • In FY19, CapitaLand divested c.SGD6bn in assets, double its annual target of SGD3bn, and recycling it into higher yielding assets. Asset recycling has also been one of the key ROE drivers lately with divestment gains/portfolio revaluation accounting for half of 2019 total PATMI.
  • Fee income growth from fund management and lodging platform remains a key pillar with an estimated annual recurring fee income of c.SGD600m pa, and expected to account for c.30% of its core PATMI.

Acquisition of 100% stake in Arlington Business Park, UK

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-27
SGX Stock Analyst Report BUY MAINTAIN BUY 4.200 SAME 4.200