Analysts from DBS Group Research, UOB Kay Hian and PhillipCapital say they like CapitaLand Investment (CLI) after the real estate investment manager (REIM)’s PATMI of $1.35 billion for the FY2021 ended December surpassed expectations.
DBS analysts Derek Tan and Rachel Tan have kept “buy” on the counter with an unchanged target price of $4, the lowest amongst the three brokerages.
In their report dated Feb 28, the analysts admit that their estimates are more conservative compared to their peers. However, the analysts see CLI as an “asset and capital efficient” company with scalable fee-related earnings (FRE) and fund assets under management (AUM) platforms for growth.
“CLI’s private funds and REITs complement each other in terms of acquisition strategy. With diverse real estate strategies ranging from opportunistic, value-add to core investments, we see CLI leveraging on opportunities during market upcycles and downcycles. Its REITs and private funds can be active across all real estate cycles,” write the analysts.
The recovery of CLI’s lodging business, Ascott Limited, is also underway, note the analysts.
During the year, Ascott Limited achieved a new milestone with a 10% rise in operational units to 77,000 units, with 56,000 units in the pipeline.
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“With 15,000 units secured in 2021 and a pipeline of over 8,200 units, Ascott is on track to hit its target of 160,000 units by 2023,” write the analysts.
In FY2021, Ascott’s portfolio revenue per average room (RevPAR) recovered +19% y-o-y to $78/night with most markets reporting an improvement y-o-y as border restrictions relaxed, they add, noting that the outlook remains robust on the back of the easing of border restrictions.
To the analysts, catalysts to CLI’s share price are: the launch of new fund products and REIT acquisitions with an aim to grow funds under management (FUM) to $100 billion by 2024; as well as a rebound in operational performance for its lodging business.
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“These are expected to drive [a] three-year net profit compound annual growth rate (CAGR) by 12% during FY2021-FY2024,” they write.
UOB Kay Hian analyst Adrian Loh has also kept “buy” on CLI with a higher target price of $4.13 from $4.02 previously.
He has also upgraded his earnings estimates for the FY2022 and FY2023 by 5% and 8% respectively to account for a slightly faster recovery in CLI’s lodging segment. The higher earnings estimates will also account for slightly better margins in its fund management business, says Loh in his Feb 28 report.
“We value CLI at $4.13/share (previously $4.02) using a sum of the parts (SOTP) methodology which comprises of: its fee-income platform where CLI earns fees from its investment management, property management and lodging management platforms; and its investment properties which CLI 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,” writes the UOB Kay Hian analyst.
Following CLI’s strong set of numbers in its maiden results, Loh expects the REIM to “continue to witness strong growth in its funds under management as well as fee income-related businesses”.
“Importantly, we expect lodging to drive earnings growth in the near term,” he adds.
Finally, PhillipCapital analyst Natalie Ong has maintained her “accumulate” recommendation on CLI. In her report on March 8, Ong has also upgraded her target price estimate to $4.05 from $4 previously.
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The higher target price comes as Ong lifts her investment management PATMI estimates for the FY2022 to factor in growth in CLI’s FUM as well as higher EBITDA in its lodging segment.
“At current growth rates, CLI is on track to hitting its 2023 lodging target of 160,000 keys under management and [its] $100 billion 2024 FUM target. This will increase the proportion of fee-related earnings for CLI, which currently account for 40% of operating PATMI,” writes Ong.
She adds that as the REIM pushes to grow its private equity (PE) FUM, new funds will “adopt a traditional PE fee structure which includes an ongoing management fee based on committed capital as well as carry fees which are tied to the performance of the fund manager”.
“As CLI’s private fund business is less established compared to its track record as a manager of listed funds, CLI is prepared to take up to a 20% stake in newly incepted private funds as a show of confidence and alignment of interest with its third-party equity providers,” notes Ong.
Shares in CLI closed 1 cent higher or 0.27% up at $3.67 on March 8.
Photo: CLI
