CapitaLand Investment - Maybank Research 2022-05-12: Delivering Growth


CapitaLand Investment - Delivering Growth

1Q22 metrics in line, stronger RevPAU recovery

  • CapitaLand Investment (SGX:9CI)'s 1Q22 performance is tracking in line to our estimates, as CapitaLand Investment maintained a flat funds-under-management (FUM), while both fee-related earnings (FRE) and the real estate investment business (REIB) grew 28% y-o-y.
  • Geopolitical risks are high and performance from its China assets could be lower in 2Q22, but we maintain our view of ~7%/c.20% FUM/FRE growth.
  • We see strong earnings momentum supporting valuation, which remains undemanding vs peers, given better-than-expected (APAC-driven) earnings trajectory. We see accelerating FUM growth, expanding FRE, and faster conversion of on-balance sheet assets to FUM creating earnings upside.

Growth in fee income, metrics improving

  • CapitaLand Investment reported 1Q22 revenue of S$598m (+16% y-o-y), driven by improvement in investment properties under its real estate investment business (REIB), which delivered S$403m in revenue (+28% y-o-y). This was underpinned by a 17% y-o-y growth in fee income (fund management: +28% y-o-y, lodging management: +31% y-o-y, and property management: -4% y-o-y).
  • We expect a stronger 2H22, driven by higher property churn, and as the recovery in its lodging business (which added 9% y-o-y in units and +71% y-o-y in RevPAU in 1Q22), gains traction on the back of opening borders, and improving margins, which could rise to 40-50% (from 30+% currently).

Better FUM performance, China remains key

  • Fee-related earnings (FRE) rose 28% y-o-y in 1Q22, with stronger performance from its private funds (+127% y-o-y) offsetting its REITs (-5% y-o-y). This was underpinned by event-driven fees, at 36% of total FRE (vs 18% for FY21), which helped lift fee-related earnings (FRE)/funds-under-management (FUM) ratio to 51bps (vs 50bps in FY21/46bps in 9M21).
  • CapitaLand Investment had exited the Vietnam value-add fund (which owns Capital Place) to realise a ~34% internal rate-of-return (IRR), even as FUM was steady at S$86m. Geopolitical risks have risen and are headwinds to FUM performance, but we see further launches of higher fee-generating funds improving FUM performance, as management eyes opportunities in China, real estate credit and data centres.

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-05-12
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