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


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.

FY20 net loss of S$1.6b; operating PATMI positive at S$769.9m but down 27.2%

  • 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.

China a bright spot, expect further momentum in 2021

  • 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.

Expect capital recycling activities to further pick up

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