CapitaLand Investment - Maybank Research 2022-08-11: Moving Past A China Blip


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

Chua Su Tye Maybank Research | https://www.maybank-ke.com.sg/ 2022-08-11
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