CAPITALAND INVESTMENT LIMITED (SGX:9CI)
CapitaLand Investment - 1Q22 Lodging Leading The Way
- CapitaLand Investment’s solid 1Q22 revenue growth of 23% y-o-y to S$665m displayed the strengths of its fee-related earnings as well as the resurgence of its lodging business.
- CapitaLand Investment’s outlook for 2022 remains strong with China potentially providing more earnings certainty should COVID-19 restrictions be lifted. Maintain BUY. Target price: S$4.13.
An in-line quarter.
- CapitaLand Investment (SGX:9CI) reported a solid quarter with segmental revenues that were in line with our estimates. Its fee income-related business saw revenue increasing by 17% y-o-y to S$262m (or 27% of our full-year estimates) while its real estate investment business generated revenue of S$403m, up 28% y-o-y (or 25% of our full-year estimates).
Lodging resurgence.
- CapitaLand Investment continues to execute on bringing more units under management into its fold with a 9% y-o-y increase in the number of units in its portfolio to 135,000 as at end-1Q22. Thus, the company is well on track to hit its 2023 target of 160,000 units.
- Importantly, the overall travel environment has improved as many countries regionally and globally have relaxed travel restrictions as COVID-19 infections have waned. This resulted in CapitaLand Investment witnessing a 34% y-o-y increase in revenue per available unit (RevPAU) to S$71 in 1Q22 (1Q21: $53). This was led by Europe (+167% y-o-y) and Singapore (+40% y-o-y) with only China stagnating. Pent-up demand for travel to Japan could bolster earnings in this segment in 2H22.
- The other key highlight of the quarter was the better-than-expected fund fee rate of 51bps which is ahead of our full-year forecast of 48bps. During the analyst call, CapitaLand Investment continued to guide for fund fee rate of 50bp but did acknowledge that it could be higher if it can successfully deploy new funds under management (FUM) into new products as well as sustain its capital recycling rate for the rest of this year.
Opportunistic in China.
- A key topic during the analyst call was China with the key takeaway being CapitaLand Investment’s ability and desire to continue to look for opportunities in that country. Given that CapitaLand Investment is a registered private equity fund manager in China with RMB-denominated funds, it believes that it is in a prime position to take advantage of the onshore capital appetite as risk-off sentiment prevails in the West.
- Interestingly, CapitaLand Investment commented that many more Grade A CBD assets are available for sale in China due to liquidity and other problems that current owners face, and thus it is looking to raise capital for this opportunity set.
Inflation: A hot-button topic.
- Another key item of discussion during the analyst call was inflation. However, CapitaLand Investment believes that it is largely insulated from inflation given that it has a broad ability to pass through inflation via its lease structures. Within its Singapore portfolio for example, higher energy costs can be passed onto its tenants via the fair tenancy framework.
M&A: Treading with more caution on a group-wide basis.
- Given the multitude of risks prevailing in the market at present, the key among them being higher interest rates, CapitaLand Investment admitted to being more cautious now vs 12 months ago on the M&A front. It stated that it now conducts more in-depth sensitivity analyses with a broader range of interest rates, and observed that many assets for sale are being priced “very finely” and thus it is exercising more caution in deploying capital.
- Nevertheless, CapitaLand Investment stated that it remains open to acquiring if the price is right, and disclosed that data centres remain a focus given that it is a growth asset class. The company also commented that it is open to privatising public market assets.
CapitaLand Investment - Valuation & Recommendation
- No changes to earnings forecasts. Maintain BUY rating on CapitaLand Investment with unchanged target price of S$4.13.
- We value CapitaLand Investment at S$4.13/share using an SOTP-based methodology which comprises of:
- its fee-income platform where CapitaLand Investment earns fees from its investment management, property management and lodging management platforms, and
- its investment properties which CapitaLand Investment accounts for on its own balance sheet, as well as its various stakes in its listed REITs and its various stakes in its unlisted funds.
- CapitaLand Investment’s 2022 P/E and P/B of 12.3x and 1.2x respectively are inexpensive in our view.
- See
- Catalysts:
- Cap rate compression and stronger-than-expected growth in its FUM.
- Continued recovery in the lodging business from the further reopening of regional and global economies.
- Gradual reopening in China after the recent COVID-19 lockdown.
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-05-13
SGX Stock
Analyst Report
4.130
SAME
4.130
