CapitaLand Investment - Phillip Securities 2022-03-08: Commendable Recycling & FUM Growth

CAPITALAND INVESTMENT LIMITED (SGX:9CI)

CapitaLand Investment - Commendable Recycling & FUM Growth

CapitaLand Investment (SGX:9CI)'s FY21 PATMI of S$1,349mil (FY20: -S$559mil) was 52% above our forecast due to higher than forecasted performance of JV & Associates, valuation recovery and portfolio gains.
FY21 dividend of S$0.15 was a positive surprise, exceeding our dividend forecast of S$0.083. CapitaLand Investment's FY21 dividend comprised S$0.12 of ordinary and S$0.03 of special dividends. Core and total dividends formed 55% and 70% of FY21 cash PATMI respectively.

Earnings bolstered by portfolio gains from a record year of divestment, higher transaction-driven fees, 8.2k lodging units turning operational and recovery in operations.
Maintain ACCUMULATE rating on CapitaLand Investment with SOTP-based target price raised from S$4.00 to S$4.05. SOTP-based target price increases as we raise FY22e investment management PATMI to factor in faster FUM growth as well as higher EBITDA from the lodging segment.

CapitaLand Investment divested S$13.6bn in FY21 at an average 13.1% premium to book value, crystalising S$616mil in portfolio gains. This was 4.5x higher than the S$3.0bn divested in FY20 and higher than the 8-10% premium CapitaLand Investment has achieved in the last 3-5 years. ~82% of divestments were converted into FUM, helping CapitaLand Investment to achieve its 10% p.a. FUM growth target.
CapitaLand Investment incepted seven new private funds in FY21, raising more than S$1.4bn from external parties. Fee-related earnings (FRE) grew 34% y-o-y to S$409mil, bolstered by transaction-driven fees which accounted for 18% of FRE. Recurring earning accounted for the remaining 82% of FRE, which grew 17% y-o-y.
Capital recycling also allowed CapitaLand Investment to rebalance its portfolio into new economy assets. ~70% of assets divested were integrated development assets, while 56% of S$6.8bn in investment were in new economic assets, which include data centres, business parks and logistics assets.

RevPAU rose 19% y-o-y, as occupancy improved to ~60%, up from ~50% in FY20. Revenue from the lodging segment grew 27%, on the back of recovery in operations and 8.2k keys turning operational.
CapitaLand Investment signed 15k new keys, up from 14k keys signed in FY20, growing the number of keys under management by 8% to 133k keys. CapitaLand Investment is on track to meet its FY23 target of 160k keys under management.

Occupancy across retail, office and new economy assets in China improved 3-4ppts y-o-y on the back of sustained reopeneing. Occupancy at Singapore retail and office assets fluctuated 1-2ppts y-o-y, still impacted by the periodic tightening of restriction. Occupancy at new economy asset was up 2ppts with positive reversions recrossed across multiple asset types.

While presented as one of CapitaLand Investment’s core markets, India represents < 3% of CapitaLand Investment’s FY21 EBITDA.
CapitaLand Investment secured positive reversions on leases signed during the year, however, occupancy in India business and logistic parks dipped 8ppts y-o-y. This contrasts with the improving occupancy seen across the new economy assets in China and Singaopore, which saw occupancy improve 3ppts to 94% and 90% respectively.

CapitaLand Investment’s property portfolio continues to recover on the back of a reopening and return-to-normalcy. CapitaLand Investment maintains its S$3bn p.a. divestment target while growing FUM by 10% p.a.. At current growth rates, CapitaLand Investment is on track to hitting its 2023 lodging target of 160k keys under management and S$100bn 2024 FUM target. This will increase the proportion of fee-related earnings for CapitaLand Investment, which currently account for 40% of operating PATMI.
As CapitaLand Investment pushes to grow P/E FUM, new funds will adopt a traditional P/E fee structure which includes an ongoing management fee based on committed capital as well as carry fees which are tied to the performance of the fund manager. As CapitaLand Investment’s private fund business is less established compared to its track record as a manager of listed funds, CapitaLand Investment is prepared to take up to a 20% stake in newly incepted private funds as a show of confidence and alignment of interest with its third-party equity providers.

Our SOTP-based target price for CapitaLand Investment increases as we raise FY22e investment management PATMI as we bake in faster FUM growth as well as higher EBITDA from the lodging segment. Our SOTP-based derived target price of S$4.05 represents an upside of 13.8% and P/E of 15.5x.
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Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2022-03-08

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 4.05 UP 4.000