CapitaLand - RHB Invest 2021-07-21: Gunning For Growth; Stay BUY

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CAPITALAND LIMITED (SGX:C31)

CapitaLand - Gunning For Growth; Stay BUY

• CapitaLand (SGX:C31)’s scheme document shines more light on the deal structure and growth avenues for CapitaLand Investment (CLI). The group expects to remain in the FTSE/EPRA Nareit Index post the proposed restructuring. Independent financial advisor Evercore has deemed the deal “Fair and Reasonable”, and our recommendation is also to vote in favour of the transaction.
• BUY with higher S$4.40 target price from S$4.25, 13% upside – pegged at a 20% discount to our revised S$5.50 RNAV.

Key takeaways from CapitaLand's scheme document.

• The newly listed entity will be called CapitaLand Investment (CLI) (deal details in previous report: CapitaLand - RHB Invest 2021-03-23: Unlocking Its True Potential; Stay BUY), and will have two key segments:
  1. Fee Income-related (fund management and lodging), and
  2. real estate investments (comprising stakes in listed and unlisted funds, and investment properties).
• The segments accounted for 21%/79% and 40%/60% of pro-forma (FY20) EBITDA and revenue.
• CapitaLand Investment’s pro-forma NAV improved by 4% to S$2.934 as at end-March, which we believe was mainly on gains from its divestments. The deal will preserve the existing CapitaLand ecosystem. Under a reciprocal Rights of First Refusal or ROFR arrangement between CapitaLand Investment and CapitaLand, CapitaLand Investment will be given a first right to invest up to 100% in relevant assets from CapitaLand, while CapitaLand will be given a first right to invest up to 100% in any development opportunity within CapitaLand Investment.
• An EGM and Scheme meeting will be convened on 10 Aug, and if approved, CapitaLand’s delisting and CapitaLand Investment’s listing are expected on 17 Sep.

Management expects double-digit ROEs on steady-state basis.

• Funds under management or FUM – at S$78bn as at end-Dec – is targeted to grow REITs and private funds.

Lower gearing presents room for growth; dividend policy to remain at least 30% of cash PATMI.

• See
  • CapitaLand's Share Price,
  • CapitaLand's Target Price,
  • CapitaLand's Analyst Reports,
  • CapitaLand's Dividend History,
  • CapitaLand's Announcements,
  • CapitaLand's Latest News.
• CapitaLand Investment’s pro-forma gearing (net debt/equity) is expected to be lower at 0.56x, compared to CapitaLand’s 0.68x. Management intends to maintain a similar gearing target of ~0.7x.
• The low gearing, coupled with CapitaLand’s divestment target of ~S$3bn pa, presents good debt headroom and room for ROE enhancements from acquisitions. Overall debt cost, post transaction, is expected to be at similar level (currently -3.0%), or slightly lower.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-07-21

SGX Stock Analyst Report BUY MAINTAIN BUY 4.40 UP 4.25