CapitaLand - OCBC Investment 2021-02-25: Look Beyond The Headline Figures

CAPITALAND LIMITED (SGX:C31)

CapitaLand - Look Beyond The Headline Figures

CapitaLand's 2H20 operating PATMI fell 26.9% y-o-y.
FY20 dividend of S$0.09 per share, -25%.
China a bright spot in FY20; expect further traction from capital recycling activities.

CapitaLand (SGX:C31) reported its 2H20 and FY20 results which fell short of our expectations. 2H20 revenue rose 9.8% to S$4,505.2m but a net loss attributable to shareholders of S$1,670.9m was recorded. This was largely due to revaluation losses of S$1,459.0m and impairments of S$865.2m.

Operating PATMI (after stripping out revaluation gains and impairments and portfolio gains) came in at S$508.7m, or a decline of 26.9%. The story was similar for the full-year figure.
CapitaLand’s headline FY20 net loss attributable to shareholders of S$1,574.3m was the largest in its history, but we would look past this jarring headline figure and focus on the recovery ahead.
Revaluation losses of S$1,636.7m in FY20 represents 4.7% of CapitaLand’s overall investment property value, and was contributed largely by a handful of assets (54% of revaluation losses contributed by five assets).
CapitaLand's FY20 operating PATMI dipped 27.2% y-o-y to S$769.9m, which was 13.7% below our forecast.
A first and final dividend per share of S$0.09 was declared, which was a decline of 25% (FY19: S$0.12 per share) and below our expectations. Notwithstanding this, we believe the lower dividends was a result of management electing to be more prudent given the ongoing macroeconomic uncertainties, while this could also be a strategic move to preserve liquidity to capitalise on growth opportunities ahead.
Furthermore, CapitaLand's FY20 dividend payout ratio (as percentage of cash PATMI) was 52%, versus 41% in FY18 and FY19.

If we exclude revaluation losses and impairments, China’s operating EBIT (including portfolio gains and realised fair value gains) rose 17% to S$2.0b in FY20. This was partly driven by a 11.8% increase in residential units handed over, with transaction value of RMB15.8b representing an increase of 28.3%.
Looking ahead, 5,400 residential units sold previously with a value of RMB10.5b are expected to be handed over from 2021 onwards, and there are plans to launch another 4,600 units for sale during the year.
CapitaLand currently has ~4 years of landbank remaining in China, and we see opportunities for management to further replenish its landbank as the local developers might scale back on their expansion plans amid a deleveraging drive by the Chinese government.
CapitaLand also has a target to grow its AUM in new economy assets in China from S$1.5b to S$5b over the next few years, highlighting its strong focus to grow in China.

From a balance sheet perspective, CapitaLand’s net gearing ratio increased from 0.64x (as at 30 Sep 2020) to 0.68x, but still at a healthy level, in our view.
Management was able to deliver S$3.0b of gross divestments in 2020 despite the pandemic, and has reiterated its annual recycling target of S$3b for 2021. We expect this to be achievable given the global recovery from COVID-19.
See CapitaLand Share Price; CapitaLand Target Price; CapitaLand Analyst Reports; CapitaLand Dividend History; CapitaLand Announcements; CapitaLand Latest News.
After adjustments, our fair value estimate for CapitaLand is increased from S$3.75 to S$3.79, still pegged to a 20% discount to our RNAV estimate.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-25

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