Particularly, Lee notes that although CLI is actively looking at deals and M&A, the group is “not pursuing M&A just for growth”. Should the potential deal look un-accretive or not drive return on equity (ROE), he sees that it will be “difficult” to go through.
The analyst sees that CLI did not pay out any special dividend nor undertake share buybacks in the FY2025, as the group is looking at “interesting opportunities in the market” and believes capital deployment will be more accretive.
On the group’s net gearing, Lee notes that CLI is “comfortable” in getting to 90% net gearing, which implies a $6.4 billion debt headroom from the current 43%. He adds that thus far, whenever CLI makes a deal, the group mainly considers using scrip or cash.
He adds: “While it’s also beneficial to use scrip if share price trades above net asset value (NAV), CLI will think about what scrip does to shareholders at the end of the day. Additionally, CLI can sell down its around $8.2 billion stake in listed funds or about $3.9 billion on-balance-sheet assets.”
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With regards to the potential spin off of The Ascott Limited (TAL) as a standalone business, Lee writes that although no clear indication was given, CLI indicated that should be TAL’s fee income fully reflected in its share price and no funding is needed for growth, then it could be more beneficial for TAL to have its own currency to do so.
TAL had a FY2025 fee income of $350 million on about 100,000 units, which is expected to grow to $500 million on a pipeline of about 76,000 units with the commencement of operations over the next few years. With this, Lee notes that CLI current earnings before interests, taxes, depreciation and amortisation (ebitda) margin of 23% should improve to 30% with operating leverage.
In China, overall asset valuations fell around 5% in the FY2025, with a larger write-down y-o-y on higher vacancies.
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“It’s hard to say if there’ll be more write-downs ahead given still-weak occupancy and reversions, hence there may still be movements [in the next] 12 months,” writes Lee.
He continues: “On the bright side, CLI expects China divestments to pick up (with hopes to sell $1 billion in FY2026 at book value versus $700 million in the FY2025; may recycle into fee-paying vehicles at discounted valuation), with a three-year rolling target to divest remaining around $3 billion of on-balance-sheet assets in China.”
With the China REIT (C-REIT) market’s removal of its previous reinvestment criteria, this expands the market to all asset classes and faster launch times, Lee sees that this should in turn CLI should be able to accelerate asset divestments.
He notes that CLI has filed for another C-REIT listing and is also exploring private REIT, with the group seeing a lot of opportunities to grow its fund management business in China.
“FY2026 will also be the year when its Chinese renminbi (RMB) denominated funds will surpass US dollar-denominated products,” adds Lee.
With this, the analyst has a “buy” call on CLI at a target price of $3.40. His target price is set at a 20% discount to his revalued net asset value (RNAV) of $4.25, which is “significantly lower” than where CapitaLand traded at pre-restructuring due to a simpler business model post-restructuring.
Key downside risks noted by Lee that could impede the stock from reaching its target price include negative rent reversions, occupancy declines, cap rate expansion within its portfolio of investment properties, slower-than-expected growth in FUM and finally, overpaying for strategic acquisitions.
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Maybank Securities’ Krishna Guha has similarly kept his “buy” call on the stock, raising his target price to $3.40 from $3.30 previously in the process.
He writes: “Despite near-term earnings pressure, our thesis is intact with continued diversification and scaling up of asset-light model. We cut FY2026 profit after tax and minority interests (patmi) by 23% but raise FY2027 by 5%.”
In the FY2025, CLI reported a revenue of $2.13 billion, a 4.2% y-o-y increase on a like-for-like basis.
Fees from fund management grew 13% to $495 million, led by a 7% growth in FUM and a 4 basis points (bps) rise in fee rate.
Fees from commercial management meanwhile remained “relatively flat” with just a slight rise of 1% y-o-y while fees from lodging management was up 2% y-o-y, led by a 3% growth in revenue per available unit (RevPAU). Operating keys were also relatively flat at around 116,000.
“All in, revenue from these fee-related businesses rose 6% y-o-y to $1.24 billion. Excluding the effect of CapitaLand Ascott Trust (CLAS) deconsolidation, revenue from real estate business fell 7% y-o-y to $1.02 billion due to ongoing divestment,” writes Guha.
For fee-related business, the ebitda margin fell from 37% to 36%, led by fund management and lodging management. This lower margin was offset by better efficiencies in real estate.
As CLI continues to build up its FUM, the Maybank analyst sees that margin pressures are “likely to stay elevated”, with the group maintaining a cash dividend of 12 cents for the FY2025 with a stable outlook.
Risks noted by Guha include the markdown of asset values, a slower pace of fund raising and transaction activity, a slowdown in global travel and high funding costs, as well as aggressive assets under management (AUM) growth through M&A and poor execution.
Meanwhile, CGS International (CGSI) analyst Lock Mun Yee and OCBC Group Research’s (OCBC) Andy Wong have both maintained their respective “add” and “buy” calls.
Unlike their peers however, Lock and Wong have reduced their respective target price and fair value to $4.19 from $4.30 previously and $3.63 from $3.69 previously.
Lock has cut her FY2026 to FY2027 earnings per share estimates by 23.3% to 23.5% after revising down CLI’s asset divestment gains due to China’s market which remains “challenging”.
She writes: “We retain our ‘add’ rating as we like CLI’s strong recurring fee-income base, which provides good income visibility, and its asset-light fund management model.”
One re-rating catalyst noted by her is a “quicker-than-projected” pace of balance sheet reduction, which should lift CLI’s ROE. Conversely, downside risks include a dampened real estate outlook and a prolonged high interest rate environment that could erode investment returns.
As for OCBC’s Wong, he notes that the group’s operating patmi for the FY2025 was 6% below his forecast. Despite this, he adds that the CLI’s DPS of 12 cents translates to a “decent” dividend yield of 3.9% based on a share price of $3.06.
As at 5.00 pm, shares in CapitaLand Investment are trading two cents higher at $3.08.
