CapitaLand - Phillip Securities 2021-03-02: Good Fight In A Tough Year


CapitaLand - Good Fight In A Tough Year

  • CapitaLand (SGX:C31)'s FY20 net loss per share of S$0.305 was worse than our profit estimate of S$0.30.
  • Net loss was S$1.57mn. Operating PATMI of S$770mn was wiped out by S$1.6bn in revaluation losses and S$861mn in impairment losses. But in spite of the pandemic, FY20 residential and industrial portfolio beat FY19 performance.
  • Dividend of S$0.09 per share, down 25% y-o-y, formed only 75% of our estimate
  • Maintain BUY. Target price lower at S$3.75 from S$3.82, still based on a 20% discount to RNAV.

The Positives

Strong residential sales.

  • Strong demand in China and higher ASPs lifted sales to RMB14.8bn, 12.1% higher y-o-y. This was despite a 3.2% decline in units sold: 5,100 in FY20 vs 5,268 in FY19. About RMB10.5bn of sales will be recognised from 2021 onwards.
  • Units sold in Singapore were up by 5.3x h-o-h in 2H20 on the back of strong demand. This is expected to continue, backed by consumer confidence for residential products. Full year, a 10-week closure of showflats and an absence of new launches in Singapore at the height of the pandemic brought units sold to 220, 56% lower than FY19’s 501.

Record 14,200 keys signed.

  • Despite an arduous year for the hospitality sector, CapitaLand’s predominantly long-stay serviced-residence platform signed a record 14,200 keys. This brought its total signed to 122,607 keys. Of these, 52,884 or 43% have yet to commence operations.
  • In FY20, 3,900 units in 25 new properties came online, adding to fee revenue. Another 17,000 keys will become operational in FY21.

Sustained retail recovery, high occupancy.

  • Shopper traffic and tenant sales in China and Singapore have slowly inched back to pre-COVID levels. Committed occupancy for retail, office and industrial was resilient at above 88.2%/85.0%/87.6%.

Active capital-recycling.

  • Although markets were frozen for the most part of FY20, the group managed to hit its S$3bn divestment target. CapitaLand and its listed REITs divested S$3.04bn of assets (FY19: S$5.9bn), realising portfolio gains of S$154mn (FY19: S$436mn).
  • CapitaLand reinvested S$3.7mn in New Economy assets such as business parks and logistics assets.

The Negative

Revaluation and impairment losses.

  • A S$1.6bn downward fair-value adjustment represented 4.7% of CapitaLand’s investment-property value. Five assets made up 55% of the revaluation losses. Newer assets such as CapitaMall Westgate, RCCQ and Jewel Changi Airport were opened between 2017 and 2019 and were still ramping up operations. As such, they were more affected by COVID-19 disruptions.
  • Tianjin International Trade Centre and Ion Orchard suffered from a lack of MICE and tourist spending due to border closures.
  • About 50% of the impairment losses were attributed to CapitaLand’s 20% stake in HK-listed Lai Fung (1125 HK). This investment was marked to market and written down as Lai Fung’s strategic direction has diverged from CapitaLand. CapitaLand is looking for buyers for its stake in this property company.


  • CapitaLand will continue to rely on three pillars for its near-term growth:
    • Development: This business will focus on New Economy asset classes such as business parks and data centres.
    • Fund management: CapitaLand remains committed to an AUM target of S$100bn by 2024 (FY20: S$77.6bn). It notes an increased interest to reallocate funds to real estate by sovereign wealth funds, pension funds and family offices.
    • Lodging: CapitaLand intends to harness its long-stay expertise to meet growing post-COVID demand. This segment will bridge the gap with its target of 160K keys under management by FY23 (FY20: 122,607 keys, 43% still under development). CapitaLand previously shared that every 10K keys signed have the potential to generate S$25mn of fee income annually as the properties progressively open and stabilise.

Downgrade from Buy to ACCUMULATE, RNAV-based Target price lowered from S$3.82 to S$3.75

  • Our target price dips due to lower development and investment property book values as we roll forward our estimates, partially offset by a change in valuation methodology for CapitaLand’s wholly-owned lodging arm, The Ascott Limited (TAL).
  • Development and investment property book values are lower as we roll forward our estimates. Development values are lower due to a diminishing handover pipeline. Investment book value has dipped because of divestments and revaluation losses.
  • We have revised TAL’s valuation method to a DCF based on a WACC of 6% and terminal growth rate of 2%. TAL was previously valued based on a P/E multiple of 12x. We believe that the DCF method will better capture TAL’s growing fee income, as more keys are signed and turn operational, versus the P/E approach pegged to one year’s earnings.
  • Our target price for CapitaLand remains based on a 20% discount to RNAV, consistent with the 10-year average post GFC discount to book. FY21e earnings per share forecast lowered by 15% from S$0.40 to S$0.34 as we lower rental income from investment properties and push back residential recognition.
  • See CapitaLand Share Price; CapitaLand Target Price; CapitaLand Analyst Reports; CapitaLand Dividend History; CapitaLand Announcements; CapitaLand Latest News.
  • CapitaLand is still our top pick for the sector. A high proportion of recurring income and its pivot to New Economy assets are expected to keep earnings stable and future-proof its portfolio.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-03-02
SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 3.75 DOWN 3.820