CapitaLand Investments has reported lower FY2024 earnings that came in below the expectations of Paul Chew of PhillipCapital.
Yet, given how CLI has built up a stronger recurring income stream along with an improved ROE with a lighter balance sheet, Chew has maintained his "buy" call on this stock along with a higher target price of $3.65 from $3.38 previously.
In FY2024, CLI divested assets worth $5.5 billion, which leaves its balance sheet with just $4.3 billion, including $3 billion worth of China assets slated for divestment.
The lighter balance sheet translates into better capital efficiency along with additional resources to reinvest.
Fee-driven earnings now contribute some 62% of operating PATMI, up from 54% in the preceding FY2023.
On the other hand, CLI made $5.4 billion worth of investments, including Wingate and SC Capital Partners.
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"This highlights CLI’s ability to redeploy divestment proceeds into high-conviction themes to drive growth," says Chew.
Also, CLI plans to grow its funds under management by at least $5 billion organically, in line or exceeding FY2024 levels achieved through acquisitions by its REITs and new fund offerings.
For now, funds under management was up 18% y-o-y to $117 billion in FY2024, driven by organic and inorganic growth of $5 billion and $13 billion respectively.
Chew expects event-driven fees from the listed and private funds platforms to pick up in FY2025 from more transactions as market conditions improve.
Lodging management fees are also poised for growth. Besides a slightly higher RevPAU of 6% in FY2024, CLI opened 11,700 units in FY2024, up from 9,600 in FY2023. There were also 15,000 units signed.
Not all indicators are positive. "Operating conditions in China remain challenging, with negative rental reversions seen across all sectors," warns Chew.
For now, with a low debt/equity ratio of 0.39x, CLI has the capacity for acquisitions to reach its $200 billion FUM target through M&As and new fund launches.
CLI shares changed hands at $2.64 as at 3.48 pm, up 0.76% for the day
