CAPITALAND INVESTMENT LIMITED (SGX:9CI)
CapitaLand Investment - Moving Past A China Blip
Slow quarter, better 2H22 fundamentals
- CapitaLand Investment (SGX:9CI)’s 1H22 operating PATMI at S$346m (+31% y-o-y) was 46% of our FY22 estimate and could have been better, sans retail rental rebates in China (1.2 months), and slower property churn. While funds-under-management (FUM) was flat, fee-related earnings (FRE) rose 10% y-o-y and real estate investment business (REIB) jumped a stronger 59% y-o-y.
- CapitaLand Investment's management remains confident on its FY22 S$3b capital recycling target (vs S$1.6b year-to-date), and we expect better fundamentals in 2H22 with FUM recovery and strengthening RevPAU.
- We see strong earnings growth supporting CapitaLand Investment's valuations, which are undemanding vs peers. Further ahead, we see accelerating FUM growth, expanding FRE, and faster conversion of on-balance sheet assets to FUM creating earnings upside.
Fee income growth, strengthening RevPAU
- CapitaLand Investment's 2Q22 revenue of S$756m (+42% y-o-y/+26% q-o-q) was driven by improvement in investment properties under its real estate investment business (REIB), which saw S$564m in revenue (+59% y-o-y/+28% q-o-q). This was underpinned by +14% y-o-y in fee income (fund management: +13% y-o-y, lodging management: +43% y-o-y, and property management: 0% y-o-y).
- We expect the recovery in its lodging business (which added 15% h-o-h in units and +44% y-o-y in RevPAU in 1H22), to gain traction in 2H22 with returning corporate travel and improving margins, which could rise to 40-50% (from 30+% currently).
Better FUM performance, China a key drag
- Fee-related earnings (FRE) rose 13% y-o-y in 2Q22 (vs +28% y-o-y in 1Q22), backed by its private funds (+24% y-o-y) and REITs (+10% y-o-y). Event-driven fees, at 30% of 1H22 FRE (vs 36% in 1Q22/18% in FY21), helped lift FRE/FUM ratio to 52bps (vs 51bps in 1Q22/50bps in FY21).
- EBITDA contribution from China fell to 12% in 1H22 (vs 28% in FY21) as recycling plans were deferred to 2H22. CapitaLand Investment launched a maiden RMB700m special situation opportunity fund (CSSRF I) to acquire a S$144m office asset in Shanghai, and is eyeing FUM growth opportunities in India, real estate credit, data centres, and lodging.
Strong balance sheet, eyeing inorganic growth
- CapitaLand Investment's balance sheet metrics remain strong, with net gearing stable at 51% (vs 48% in 1Q22) at 4.9x interest cover and 2.8% borrowing cost (from 2.6%). Its fixed-rate debt rose to 66% (from 59%) with higher RMB-denominated debt exposure and recent deals.
- CapitaLand Investment is targeting an 8% FY22 cash ROE, and we see this backed by rising fund and lodging management fees, further securitisation of on-balance sheet assets, and scaling down of its share of capital in raising new FUM.
- Our SOTP-based target price for CapitaLand Investment stays at S$4.30. Reiterate BUY.
- See
- Upside surprise could arise as management targets inorganic growth from listed and private equity platforms, while maintaining its APAC concentration.
Chua Su Tye
Maybank Research
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https://www.maybank-ke.com.sg/
2022-08-11
SGX Stock
Analyst Report
4.300
SAME
4.300
