CapitaLand - RHB Invest 2021-03-23: Unlocking Its True Potential; Stay BUY


CapitaLand - Unlocking Its True Potential; Stay BUY

  • CapitaLand (SGX:C31)’s move to strategically restructure its portfolio by privatising its development arm and maintaining the listing of its investment management arm is a highly value-unlocking move. The implied offer price of S$4.10/share (0.95x P/BV) is fair in our view considering current market conditions – we recommend unitholders to vote in favour. We also narrow our RNAV discount from 30% to 20% on its transformative move.
  • Keep BUY, with new target price of S$4.25 from S$3.75, 28% upside.

A much needed value-unlocking move.

  • CapitaLand announced announced the strategic restructuring of its business, by which the business will be split into two – CapitaLand Development (CD) and CapitaLand Investment Management (CLIM).
  • CapitaLand Development (CD), which will comprise of capital intensive longer gestation incubator, development, and township projects (pro-forma NAV-S$6.7bn) will be privatised. This will be via a combination of a cash offer – S$0.95/share and distribution of shares in CapitaLand Integrated Commercial Trust (CICT SP, NEUTRAL, Target price: S$2.10), ~0.08 CICT units per share of offeror’s entitlement – amounting to a total value of ~S$1.121/share or ~0.95x of pro-forma NAV of CD.

CapitaLand Investment Management (CLIM) will be listed

  • CapitaLand Investment Management (CLIM) will be listed by way of introduction with each unitholder receiving one unit in the new entity and a pro-rata entitlement of ~0.075 units of CICT. The total implied offer price including privatisation (assuming 1x NAV upon listing of CLIM) corresponds to S$4.10/share – 0.95x of CAPL’s FY20 NAV – 24% premium to the last closing price and 5-year volume weighted average price (VWAP). Unitholders will also be entitled to FY20 proposed dividend of S$0.09/share.
  • We are positive on the transaction as unitholders will retain exposure to high ROE generating and fast growing fund management/fee income business while monetising investments in the more risky development business where ROE returns have been falling because of policy risks and competition. The above transaction is subjected to unitholder approval and expected to be completed by end-2021.

CapitaLand Investment Management (CLIM) offers strong platform for sustainable growth.

Key concerns

  • Key concerns are the smooth transition of the management team, managing potential conflict of interests for acquisition/divestments among different entities and potential removal from the FTSE EPRA NAREIT Index.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-03-23
SGX Stock Analyst Report BUY MAINTAIN BUY 4.25 UP 3.750