SINGAPORE (May 3): Phillip Securities and DBS Group Research are maintaining CapitaLand at “buy” with target prices of $4.19 and $4.35 respectively.
Phillip analyst Tan Dehong says CapitaLand’s earnings outlook remain stable given more than 80% of its assets are investment properties in Singapore and China contributing to recurring income.
Over the next nine months, Tan says residential sales worth RMB10.6 billion ($2.22 billion) in China and $343 million in Vietnam are expected to be completed and handed over in the next 9 months, which will provide further support to earnings in FY18.
Retail sales in CapitaLand’s Tier 1 and 2 malls are stabilising while Tan expects the three new Raffles City integrated developments in China which opened in FY17 to boost recurring income growth in FY18 as occupancy improves.
“We estimate annualised operating PATMI for the recurring income segment alone to be $740 million, sufficient to cover about 1.5 times FY17’s dividend of 12 cents/share,” says Tan.
To recap, CapitaLand reported 1Q18 earnings of $319.1 million, in line with DBS’s estimates. While it fell 18.8% y-o-y, DBS analyst Derek Tan notes that PATMI in 1Q17 was boosted by the one-off gain from the en bloc sale of 45 units of The Nassim, which contributed $160.9 million in gains. Excluding the effects of the en bloc sale, PATMI would have grown by 38% y-o-y.
CapitaLand’s development business saw a dip in momentum y-o-y. In Singapore, the group sold 40 units worth $150 million, mainly from high-value Victoria Park Villas. Most of the units in Singapore across seven developments are now substantially sold. The group also added Pearl Bank Apartments through an en bloc process and will look to launch it in 2019.
In China, sales were lower by 50% y-o-y due to fewer launches. The group has another RMB 15.1 billion to be handed over in the coming 1.5 years, of which 70% will be recognised in 2018. A pipeline of launch ready projects totalling 5,725 units is expected to be launched for sale and will add to earnings visibility when sold, says DBS’s Tan.
In Vietnam, CapitaLand continues to see strong sales with 95 units sold with a sales value of $23 million in 1Q18. The group has close to $686 million to be recognised from 2Q18 onwards. The group expects to recognise close to 50% of the value in 2018.
Phillip’s Tan says 1Q18 revenue and earnings came in line with the research house’s forecasts. Same-mall y-o-y tenant sales growth stable at 6.2% for China, CapitaLand’s biggest market. Tier 1 and 2 cities saw higher sales growth vs lower tier cities. China accounts for 60% of CapitaLand’s total retail assets by valuation. Smaller markets in Japan and Malaysia also saw low-to-mid single digit growth.
Meanwhile, China residential sales sold in 1Q18 had halved y-o-y due to less units available for sale with only 4% of all units launched remain unsold. 998 units were sold in the quarter, half of that one year ago, due to less units available for sale.
“With 6,000 units ready for launch by end FY18, we expect sales numbers to pick up over the next few quarters,” says Tan.
Serviced Residences RevPAU also grew 5% y-o-y, continuing the momentum from 4Q17. Despite the weak RevPAU performance from Ascott REIT, overall group RevPAU grew 5%, led by strong performances in Europe, Singapore and China.
As at 3.45pm, shares in CapitaLand are trading at $3.76 or 16.3 times FY18 forecast earnings by Phillip.
