CapitaLand Investment - Phillip Securities 2022-11-08: Growth Supported By RevPAU Recovery

CAPITALAND INVESTMENT LIMITED (SGX:9CI)

CapitaLand Investment - Growth Supported By RevPAU Recovery

CapitaLand Investment (SGX:9CI)'s 9M22 revenue of S$2,331mil (+36% y-o-y) was above our estimates, forming 88% of our forecast.
Real Estate investment revenue grew 48% y-o-y, driven by an occupancy recovery in their core markets, Singapore and India. Fee-related revenue was up 16% y-o-y, lifted by Private Equity fund management (+44%) and lodging management (+48%) as RevPAU recovered to 92% of pre-pandemic 3Q22 levels.

Maintain ACCUMULATE on CapitaLand Investment with an unchanged SOTP-based target price of S$4.12.
We raise FY22e earnings forecast for CapitaLand Investment by 8% as we increase Real Estate investment revenue estimates for FY22e. The pick-up in travel and lifting of lockdowns in China will be immediate catalysts for CapitaLand Investment.
Note: In the 3Q22 update, only revenue and funds under management details were provided.

Private Equity (PE) fees (+44%) were boosted by higher transaction-related fees, which formed 47% of Private Equity fees, while recurring Private Equity fees dipped slightand fell 5% y-o-y.
CapitaLand Investment’s listed funds posted +7% and -6% growth in recurring and transaction-related fees respectively. The latter was the result of a high base in 9M21, as transactions picked up after the pandemic year in 2020. Recurring fees made up 74% of 9M22 fee-related revenue.

Lodging management fees rose 48% on recovering operating performance as well as 8.2k/7.3k new units turning operational in FY21/9M22. RevPAU grew 41% as average daily rates grew 20% and portfolio occupancy increased 10%.
Recovery was seen across all CapitaLand Investment’s key markets, except China, with the strongest RevPAU recovery in Europe (+139%) and Singapore (+66%).
CapitaLand Investment also signed 7.3k keys in 9M22, ~89% of the number of keys signed in FY21, taking the number of keys signed to 155k. CapitaLand Investment is on track (~97%) to meet its 2023 target of signing 160k keys.

Real estate investment business (REIB) grew 48% y-o-y, on the back of reopening in most of CapitaLand Investment's markets, except for China. Significant easing of community safe management measures since Mar 22 has improved business and consumer sentiment and increased activities.
Leasing activity in India has similarly picked up with physical occupancy at business parks improving to ~39% from < 5% in FY21.

Due to China's zero COVID-19 policy, China has not fully reopened since the start of the pandemic. While tenant sales in Singapore have recovered 29.4% y-o-y for 9M22, tenant sales in China declined 13.3%. Similarly, shopper traffic in China has declined 20.8% in China compared to an increase of 21.5% in Singapore.
Occupancy at Chinese malls has dipped to 92% (2Q22: 92%), compared to the 97% retail occupancy for Singapore.

Inflation, rising interest rates and the Russia-Ukraine conflict have resulted in more circumspect behaviour and higher required returns for capital investors , limiting the assets eligible to seed funds.
While US$-denominated capital has taken a wait-and-see approach towards RMB investments, CapitaLand Investment’s RMB fund management license allows it to tap local capital. However, continued lockdowns and tightened restrictions in China have impeded business discussions and may delay planned transactions.

CapitaLand Investment’s real estate investment and lodging management business should continue to recover on the back of further easing of travel and mobility restrictions.
After having divested S$2.4bn year-to-date, CapitaLand Investment is on track to hit its annual divestment target of S$3bn. However, its 10% FUM (Funds Under Management) growth target may be at risk given the current macro-economic and geopolitical headwinds which have resulted in more circumspect behaviour among capital investors.
Prolonged lockdowns in Shanghai and Beijing may also delay planned transactions.

We maintain our ACCUMULATE recommendation on CapitaLand Investment with an unchanged SOTP-based target price of S$4.12. We raise FY22e earnings forecast for CapitaLand Investment by 8% as we increase Real Estate Investment revenue estimates for FY22e.
Our SOTP-based derived target price of S$4.12 for CapitaLand Investment represents an upside of 9.5% and a P/E of 16.1x. The pick-up in travel and lifting of lockdowns in China will be immediate catalysts for CapitaLand Investment.
See

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-11-08

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 4.120 SAME 4.120