UOB Kay Hian’s Adrian Loh and Loke Peihao have maintained their “hold” calls on Capitaland with a lowered target price of $2.80, lower than their previous price of $3.
They cite Capitaland’s recently released 3Q2020 business update as ‘reasonably strong”, but said the horizon “remains cloudy”.
See: CapitaLand says it sees 'encouraging signs of recovery' in 3Q business update
Loh and Loke pointed out that there were “sequential improvement” in a number of key metrics; highlighting the office and lodging segments, which reported positive reversions portfolio-wide and better occupancy rates respectively;
However, in the next couple of quarters, Capitaland has warned that both segments are looking at softening market conditions and negative impact from a resurgence of COVID-19 in Europe respectively.
Despite these, its dividends likely to be maintained, and Captialandstated that it will look to continue paying a similar dividend of 12 cents per share as per previous years; however, its dividend reinvestment plan will naturally be a significant part of such plans.
It pointed out that while 1H20 operating profit after tax and minority interests (PATMI) declined 28% y-o-y and its capital recycling programme has not hit its targets, it believes that 2H20 will exhibit sequentially better results, and thus the company will look to maintain its dividend payout for the full year.
On the other hand, PhillipCapital analyst Natalie Ong maintained her “buy” call on the counter with an unchanged target price of $3.82.
She believes momentum is strong in the development segment while leasing headwinds persist in the retail, commercial and industrial sectors.
Ong called the recovery in hospitality “somewhat stunted”, as it hinges on the vaccine timeline. As such, Capitaland is focusing on digitalisation to build stickiness and future-proof its portfolio, while conserving cash.
She highlighted a strong momentum in residential sales, and elaborated that residential sales in China grew 40% q-o-q to about 1,900 units, while Singapore’s 3Q2020 sales were three times the 35 units sold in 1H20. Handovers were on track in Vietnam, with their YTD value almost tripling from the same period last year.
There was also a “sustained recovery” in the retail and lodging segments as tenant sales continued to improve, to 17% and 31% below pre-COVID levels in Singapore and China. Back in June 2020, they were 19% and 42% below, respectively. Malls maintained their occupancy in the 87.9-99.8% range. Although reversions in Singapore were -4%, China’s reversions were positive or flat.
Ong noted in the lodging segment, occupancy increased 40-50% q-o-q while revenue per available unit (RevPAU) improved 22% q-o-q, but still down 52% from 2019 levels.
Despite a longer recovery runway for the hospitality sector, CAPL signed 3,500 keys in 3Q20. This brought its YTD signed to 6,400 keys as franchisees and asset owners validate the value proposition and resilience of the service residence asset class.
Notably, Ong also pointed at Capitaland’s digital retail ecosystem comprising CapitaStar, eCapitaMall and Capita3Eats, and said they have shown results in driving tenant sales.
More than 2,000 tenants have been onboarded on the three platforms, up 25% QoQn and eCapitaVoucher sales in Singapore have increased by about 229% YTD.
She said The 13 million CapitaStar members registered appear to underscore the success of its spend-and-be-rewarded strategy. Since the launch of Ascott Star Rewards (ASR) in April 2019, direct bookings and online revenue have grown by 35% and 20% respectively.
As such, this has lifted margins as direct bookings cut out commissions payable to accommodation-listing platforms and promote brand stickiness. As CapitaStar points are fungible with ASR points, the digital ecosystem encourages cross-selling. This should further entrench Capitaland’s position as a diversified real-estate juggernaut.
Ong said Capitaland is PhillipCapital’s “top pick” in the sector, and added “portfolio diversification and decades of experience in real estate should help it ride out near-term headwinds.”
As at 11.02am, shares of Capitaland were trading flat at $2.86, with a FY2020 price to book ratio of 0.55 and dividend yield of 4.5%
