DBS Group Research analysts Derek Tan and Rachel Tan have re-initiated a ‘buy’ rating on CapitaLand Investment (CLI) with a target price of $4.00, offering a 20% upside.
The analysts expect the catalysts that emerge to be the launch of new fund products and REIT acquisitions, with an aim to grow funds under management (FUM) to $100 billion by 2024, up 19% from 2021, and a rebound in operational performance from its lodging business.
“These are expected to drive a three-year net profit compound annual growth rate by 12% during FY2021-FY2024,” say the analysts.
In addition, the analysts consider CLI as a leading Asian real estate manager with ability to acquire across business cycles.
“CLI is an asset and capital efficient company with a scalable fee-related earnings (“FRE”) and Fund AUM (“FUM”) platform for growth,” they write. “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,” they continue.
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S-REITs are well positioned for growth, according to the analysts, with CLI’s REITs under management are among the largest S-REITs that enjoy strong liquidity and trade at a conducive cost of capital, which positions them for accretive acquisitions and AUM growth. “We estimate that the REITs will on average acquire up to S$4 billion of new properties per annum from Sponsors, third parties, or from CapitaLand Development,” say the analysts.
Moreover, CLI is said to be growing its private equity business as well. “CLI recently beefed up its leadership team with senior hires in the private equity space. We see the group launching new product suites and strategies to diversify its AUM base, [with greater] opportunities to diversify into the alternative real estate space (i.e., data centres, multi-family and lodging) and infrastructure are asset classes that are complementary to the group’s current focus,” say the analysts.
“Growth may come in the form of M&A or new fund products that may be launched in the coming years,” they add.
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The analysts also expect the lodging business to return to the black as international borders to re-open as well. This is in light of Ascott Limited’s global footprint is well placed to leverage on multi-year recovery of the hospitality sector in coming years. “On top of robust growth in its operational footprint to 160,000 units by 2023, we see a turnaround in cash flows, as reopening of international borders is expected to drive the lodging business back to profitability,” say the analysts.
Some risks identified by the analysts include falling capital values and inability to grow FUM.
At 5:42pm, shares in Capitaland Investment are trading 18 cents higher or 5.17% up at $3.66 on Jan 4.
