CapitaLand - Ground checks in South China and Vietnam
- Ground checks in China and Vietnam shows that property activities are still robust.
- The company has strong locked-in China residential earnings, with longer-term returns boosted by alternative landbanking sources.
- It is expanding residential activities in Vietnam and venturing into commercial properties with capital partners.
- Higher recurrent income base from completion of eight malls in 2017, with positive knock-on effect on ROE when contributions stabilise.
- Maintain Add with unchanged TP of S$4.17.
Ground checks in South China and Vietnam
- Our visit to some of CAPL’s projects in Guangzhou, Shenzhen and Vietnam showed that on-ground activities continued to be fairly vibrant.
- To drive group ROE expansion, CAPL intends to continue strengthening its core businesses and competitive advantages, adopt an ‘asset-lighter’ strategy, expand the AUM of its investment management business and stay relevant within the real estate space.
High China residential visibility from sustainable pipeline
- CAPL’s focus remains Tier 1 and 2 cities in China. It has accelerated launches ahead of the new housing restrictions in 4Q16 and has locked in Rmb14bn worth of sales YTD, of which 40% is expected to be recognised in 4Q16.
- To maintain a sustainable pipeline, at more competitive prices, CAPL is also tapping into urban renewal projects, namely the Datansha Island project. CAPL has an attributable 2m sq ft GFA for this development, which is projected to generate better returns once completed and sold.
Tapping into more growth opportunities in Vietnam
- To ride on the robust growth in Vietnam, CAPL intends to accelerate its residential activities and aims to acquire landbank for 2,000-2,500 home units in 2017, as well as secure 1-2 new commercial sites together with its capital partners to expand into the commercial segment via its US$500m commercial fund.
Rising proportion of operating assets boost recurring core profit
- In addition to plans to expand ROE by adopting an asset-lighter business model and expand investment management fees, core net profit would be boosted by the completion of eight malls in 2017. Once their earnings contribution stabilises, we anticipate group ROE to improve with higher recurrent income from these assets, post-impact of pre-opening expenses.
Maintain Add with unchanged TP of S$4.17
- We continue to like CAPL for its capital-recycling activities and asset-light model that would drive ROE expansion in the medium term.
- The stock is currently trading at 41% discount to RNAV. Our TP of S$4.17 is premised on a 20% discount to RNAV.
- Maintain Add.
- Risks to or view include a prolonged slowdown in the China property market or slower-than-expected capital deployment.