SINGAPORE (July 23): CapitaLand is RHB Research’s top large-cap “buy” given it has the least exposure to Singapore’s residential segment among big-cap developers and is likely to see minimal impact from latest cooling measures.
By 1Q18, CapitaLand has already sold 98% of launched projects in Singapore. It only has one residential project in the pipeline – redevelopment of Pearl Bank Apartments. It acquired the site at a land cost of $1,515 psf in February and RHB believes 5-10% margin is still achievable for this project given the site’s attractive location and limited new launches expected in the area.
Elsewhere in China, RHB’s residential market remains resilient. The firm is expected to progressively hand over more than 8,000 units in China in 2018-2019 and has unbilled earnings recognition of RMB15.1 billion ($3.1 billion) to recognise.
RHB’s Hong Kong Research team reiterated in a July report that China’s property sales momentum is expected to continue in 2H18. While there are concerns over liquidity and rising funding costs, the research house believes this should not impact developers with healthy balance sheet but instead provides them with an opportunity to do distressed acquisitions.
CapitaLand has been steadily boosting recurring income segment by rapidly growing serviced residence business, opening new malls and undertaking mall management contracts, and beefing up fund management wing. Serviced residence platform – Ascott – has been growing rapidly: over 43,700 units contributed to a healthy fee income of $43 million in 1Q18, with another 31,500 units under various stages of development. When completed, these are likely to boost Ascott’s FY 2017's fee income by about 50% on a stabilised basis.
In 1Q18, REITs/fund management fees amounted to $57.8 million, or 18% of total PATMI. Dividend yields of 4% and share buyback programmes lend support to share price. Year to date, CapitaLand has bought back 57.6 million of own shares -- 1.4% of total -- worth $208.8 million. The average purchase price of $3.62 is pegged at 20% discount to book value, and is accretive to unitholders’ value. RHB expects management to continue with buyback plans in 2H18, as the share price is trading at a steep 37% discount to RNAV.
“CapitaLand remains our large-cap top “buy” with new $3.95 target price. This is pegged at 20% discount to revised RNAV estimate of $4.88,” says RHB.
As at 11.35am, shares in CapitaLand are trading at $3.19 or 12.8 times FY18F recurring earnings.
