CapitaLand - Bolstered By Strong Sales In China

Pic Credits : Capitaland.com
CapitaLand’s 2Q15 results were in line with our estimates. Reiterate BUY with a RNAV-derived TP of SGD4.22, implying a 33% upside. Apart from its core markets, the company will also focus more on growth markets like Vietnam, Indonesia and Malaysia this year. Its projected FY15 group capex is over SGD1bn. At a 43.6% discount to RNAV, we think valuations are still undemanding at this level.

2Q15 results in line
CapitaLand recorded 2Q15 operating PATMI of SGD256.1m (+87.6% YoY), mainly driven by a change in its business plans for The Paragon and Raffles City Changning from strata sales to leasing as investment property. Revenue came in strongly – up 17.8% YoY to SGD1.03bn for the quarter, mainly driven by higher contribution from development projects in China, partially offset by development projects in Singapore and Vietnam. Collectively, the two core markets of Singapore and China accounted for 79.6% (2Q14: 72.9%) of the company’s revenue.

Healthy core markets
CapitaLand sold 37 residential units (2Q14: 161 units) in Singapore at a total value of SGD106m, compared with SGD253m a year ago. The lower sales volume was mainly due to an absence of new project launch for the quarter. Despite the lower sales volume, we are encouraged that most of CapitaLand’s units were substantially sold. In the pipeline, we are expecting The Nassim and Cairnhill to be ready for launch by early 2016. While in China, CapitaLand sold 2,764 residential units vs 1,054 units a year ago. Sales were mostly from Riverfront in Hangzhou, Dolce Vita in Guangzhou, and La Cite in Foshan. Management expects to yield ~5,803 new launchready units for the next six months in 2015, of which 29.1% will be launched in Tier-1 cities.


Technical Analysis
Daily Chart
Our view
We like the fact that 94% of CapitaLand’s China exposure by value is in Tier 1-2 cities, which limits downside risk. We are keeping our eyes on more synergistic benefits related to its “One CapitaLand” strategy – with a single listed developer integrated across asset classes, delivering a sustainable ROE of 8-12%. Management reiterated it will achieve this via its stance of having 25% trading properties and 75% investment properties in allocated assets. Reiterate BUY with our TP unchanged at SGD4.22. (Read Report)

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Source : RHB Research

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