CapitaLand - DBS Research 2020-08-06: Strength In Diversity

CAPITALAND LIMITED (SGX:C31) | SGinvestors.io CAPITALAND LIMITED (SGX:C31)

CapitaLand - Strength In Diversity

  • Earnings lowered to account for business disruption due to COVID-19.
  • Recovery to be more gradual with normalisation timeframe of 2 years.
  • Asset recycling activities remain key catalysts.



Maintain BUY, Target Price reduced to S$3.70.

  • We maintain our BUY call on CapitaLand (SGX:C31) but reduce Target Price to S$3.70 after imputing a larger 35% discount to RNAV (vs 20% before) of S$5.62. Our Target Price implies 0.8x P/NAV, which is pegged to -0.5 standard deviation of its mean.
  • Despite COVID-19 impacting ROE in 2020, we see this as one-off and ROEs should rebound back to 7%-8% in 2021-2022. CapitaLand's current valuations are attractive at close to 10-year trough levels and we believe that most negatives are priced in.
  • Catalysts will come from potential recycling activities among its listed S-REITs, which may augment upside to ROEs.


Where we differ: Ability to drive sustainable ROE.

  • We have cut our earnings by 33-75% in FY20-21F to account for business disruptions across its commercial (retail & office), residential and lodging businesses in 2020. While operations are recovering from 2H20, it is likely to be more gradual with expectations of normalisation from 2022 onwards. While we estimate a cut in dividend in 2020, this is likely to normalise from FY21.


Asset reconstitution strategy at work.

  • With its managed REITs trading at attractive cost of capital, we see recycling activities (possibly in China, Japan and Singapore) to be key drivers, which could lead to ROE upside in 2020. We look forward to potential asset divestments or part sale of its stakes in its stabilised Raffles City projects and Business Parks in China to CapitaLand Retail China Trust (SGX:AU8U).


Valuation:






Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2020-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 3.70 DOWN 4.500



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