CapitaLand - RHB Invest 2020-12-09: Repositioning Into The New Economy; Keep BUY


CapitaLand - Repositioning Into The New Economy; Keep BUY

  • CapitaLand remains our sector Top Pick. Its portfolio operations across various asset classes have rebounded from a 2Q trough. Despite COVID-19, CapitaLand managed to achieve its annual target of S$3bn in divestments and has recycled its capital into new economy asset classes.
  • Valuations remain attractive, with CapitaLand's share price trading at 31% and 41% discounts to book value and RNAV.

Retail operations across markets have rebounded in 3Q

  • CapitaLand (SGX:C31)'s retail operations across markets have rebounded in 3Q, with good improvements seen in tenant sales and shopper traffic. Overall occupancy for CapitaLand's lodging assets also improved to c.50% in 3Q (2Q: 40%) with a c.22% q-o-q increase in revenue per available room or RevPAU.
  • CapitaLand's 3Q fund management fee income rose 2% q-o-q to S$71.1m (-18% y-o-y). We expect a strong 2H vs 1H and estimate a 48% y-o-y rise in 2021 earnings.

Achieves S$3bn divestment target; recycles capital into new economy assets.

  • CapitaLand recently announced the sale of three Japanese retail malls – La Park Mizue, Vivit Minami-Funabashi, and Coop Kobe Nishinomiya Higashi – for JPY21.99bn (S$283.6m) at a slight premium to book value (estimated net gain: S$6.4m). It also formed a JV with Mitsui & Co to develop and operate a logistics project (4Q22 expected completion) in Greater Tokyo, marking its maiden foray into Japan’s logistics sector.
  • In November, CapitaLand also announced plans to ramp up investments in China to S$5bn from S$1.5bn with a focus on business parks, data centres, and logistic assets. These moves reiterate its strategy of divesting non-core assets (mainly retail) and to recycle the capital into new economy assets.
  • Year-to-date-November, CapitaLand has registered a gross divestment value of S$3.02bn and invested more than S$3.3bn into new assets.

Strong residential sales across markets.

  • China residential sales rose 40% q-o-q to 1,900 units in 3Q. In Singapore and Vietnam, CapitaLand sold 3x and 2x the total number of units sold in 1H.

Scaling up its US multi-family portfolio.

  • In December, CapitaLand announced the formation of a programmatic JV (80% stake) to acquire and develop a freehold land parcel in Austin, Texas, to develop the JV’s first multi-family project totalling USD300m (S$416.1m). The JV will focus on the south-east and south-west markets in the US with an initial focus on Austin.
  • Multi-family as an asset class had been holding up well, with its existing portfolio of 16 assets acquired in 2018 registering a committed occupancy of c.95%. We believe such assets in the mid to long term have the potential to be spun off as a standalone REIT or divested into Ascott Residence Trust (SGX:HMN).
  • With this new investment, CapitaLand’s asset under management in the US stands at S$4.7bn, or c.5% of its total.

Earnings Forecast

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-12-09
SGX Stock Analyst Report BUY MAINTAIN BUY 3.750 SAME 3.750