CapitaLand - Phillip Securities 2021-05-17: More Green Shoots

CAPITALAND LIMITED (SGX:C31)

CapitaLand - More Green Shoots

CapitaLand (SGX:C31)'s residential sales powered further ahead. Units sold in 1Q21 in Singapore and China catapulted 3.9x and 3.3x y-o-y. Higher capital recycling lifted total fee income by 9% y-o-y.
Retail, office and industrial properties resilient.
Lodging recovery stalled by movement restrictions in several countries.
Maintain BUY on CapitaLand and target price of S$4.38, based on probability-weighted RNAV and SOTP. We assume 80% probability of approval for demerger.

The number of homes sold in 1Q21 in Singapore and China catapulted 3.9x/3.3x y-o-y to 81/1,333 units. Sustained momentum is expected in FY21.
In Vietnam, sales were negative due to delays in securing permits for units sold previously and buyers’ return 212 units in FY20. Returned units in 1Q21 eased y-o-y from 48 to eight. Delays in permit issuance are expected to ease after the Vietnamese Communist Party’s central committee was elected on 1 February 2021.

Fee income grew 30% y-o-y, lifting total fee income by 9% y-o-y. This was led by higher transactions from improved market sentiment, resulting in higher acquisition/divestment fees and an enlarged base of REIT fund AUM. Fund AUM grew S$1.6bn or 2% q-o-q to S$79.2bn, inching closer to CapitaLand’s 2024 S$100bn target.

Retail occupancy was resilient q-o-q with better tenant sales across its markets. Reversions were still flat to negative single digits.
In Japan and South Korea, office occupancy improved from 89.9%/90.9% to 95.5%/98.7% q-o-q. Occupancy in Singapore, China and Germany ranged from -0.3ppt to +1.4ppts q-o-q.
Industrial occupancy varied from -2.5ppts in Australia to +1.1ppts in Europe. Average reversions for office and industrial were mostly positive in all the markets.

1Q21 RevPAU was down 28% y-o-y and 5% q-o-q. Flat to single-digit q-o-q RevPAU growth in Singapore, Australia, Philippines, Indonesia, Thailand and India was wiped out by RevPAU declines in China (-11%), Japan and South Korea (-16%) and Europe (-9%). The reason for North Asia’s and Europe’s declines was movement restrictions to contain the spread of the virus.
Despite the long road to recovery, CapitaLand managed to sign 2,800 units year-to-date, increasing the number of keys under management to 123,000. US multifamily portfolio was resilient with occupancy at 94.5%.

CapitaLand’s recovery is under threat from new waves of the virus, which have reignited lockdowns across the globe. This will have knock-on effects on its operating segments. A pick-up in the transaction market has allowed CapitaLand to divest S$2.7bn of AUM year-to-date, bringing it closer to its S$3bn annual divestment target.
Lodging AUM and fund AUM will continue to provide growth. On its lodging platform are 52,900 units (30% of the 123,000 signed units) that are expected turn operational in the next three years. Once operational, they will begin contributing to earnings.
CapitaLand is also pursuing a China renminbi fund management licence that will allow it to raise Chinese equity, a previously untapped source of capital. This could be a catalyst for its private fund AUM growth.

No change to our earnings forecasts for CapitaLand. Our target price for CapitaLand is based on probability-weighted RNAV and SOTP-based valuations, with an 80% probability of demerger. Our demerger valuations are derived from an average of the two valuation methods is outlined in report attached below.
See
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 its portfolio future-ready.

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-05-17

SGX Stock Analyst Report BUY MAINTAIN BUY 4.380 SAME 4.380