CapitaLand gets "buys" with business as usual while it builds recurring income base

By EdgeProp Singapore

/ The Edge Singapore |

November 9, 2017 2:00 PM SGT

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CapitaLand’s 3Q17 earnings were boosted by gains from asset reconstitution activities.

The property group on Wednesday reported a 28.1% rise in PATMI to $317 million on the back of higher revenue and EBIT of $793.5 million.

Operating PATMI, however, fell 19% y-o-y to $204.5 million, mainly due to fewer handovers of residential projects in China and the impact of divestment of commercial assets in Singapore.

Revenue increased 9.7% to $1.5 billion due to higher contribution from development projects in Singapore, higher rental revenue from newly-acquired and opened shopping malls and serviced residences, as well as the consolidation of revenue from CapitaLand Mall Trust, CapitaLand Retail China Trust and RCS Trust.

DBS says its stronger overall performance was largely driven by fair value gains arising from Golden Shoe Car Park, serviced residence component of the Funan integrated development in Singapore, Citadines Biyun Shanghai in China as well as portfolio gains from the sale of Wilkie Edge (Singapore), CapitaMall Anzhen in China and a 60% stake in CapitaLand Vietnam Commercial Fund 1.

DBS is maintaining its "buy" and target price to $4.35 on the back of a 10% discount to RNAV.

“We believe that CapitaLand will see higher valuations on the back of improved property market sentiment, leading to strong sales,” says analyst Derek Tan, “In addition, continued asset recycling activities could translate to higher gains and boost ROEs going forward.”

Meanwhile, UOB says CapitaLand’s 3Q17 results came in marginally below expectations. However, the group expects home-buying sentiment to improve further in Singapore and sees limited impact from property cooling measures in China as they mainly target properties for first-time buyers and upgraders.

From 4Q17 onwards, CapitaLand has RMB13.8 billion ($2.8 billion) in value to be recognised from 4Q17 onwards from 8,000 sold units of Chinese residential properties, of which 10% is expected to be recognised in 4Q17.

CapitaLand’s management is also seeking to strengthen the group’s presence in Singapore and China, and expand in Indonesia and Vietnam.

“Maintain ‘buy’ with an unchanged target price of $4.30, pegged at a 15% discount to our RNAV of $5.06/share,” says UOB lead analyst Vikrant Pandey.

Elsewhere, CIMB is leaving its FY17-19 core EPS estimates unchanged after the results announcements but adjusting its RNAV to $5.31 due to higher target prices for its REITs.

EBIT from the shopping malls unit doubled in 3Q on consolidation of CMT, CRCT and RCST as well as higher contributions from its China malls. The retail portfolio enjoyed high occupancy, in excess of 92%, as well as greater shopper traffic and tenant sales growth.

The Ascott unit also reported higher EBIT in 3Q, thanks to a stable portfolio REVPAU and additional contributions from newly-acquired or opened properties.

“Accordingly, our RNAV-based target price for CapitaLand is lifted slightly to $4.25 (20% discount to RNAV),” says CIMB analyst Lock Mun Yee who is sticking to her “add” rating.

Finally, RHB says CapitaLand has been turning cautiously optimistic on the Singapore residential market although the group has temporarily halted sales of two of its residential projects, in anticipation of price increase.

“We note that CapitaLand currently has very limited unsold residential inventory of less than $1 billion or less than 2% of total assets and has not acquired residential sites in last few years,” says analyst Vijay Natarajan.

“Maintain ‘neutral’ with target price of $3.90, pegged at a 20% discount to RNAV of $4.87,” says Natarajan.

At 11.51am, shares in CapitaLand are down 1 cent at $3.63 or 0.8 times FY18 book.

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