■ Visited six projects in Shanghai, Hangzhou and Suzhou.
■ Expect a record year of sales with 8,000 homes at CNY14b in value. New financing options could lower costs in China.
■ Maintain BUY and SGD3.88 TP, based on 15% RNAV discount.
Visited Shanghai, Hangzhou and Suzhou
We visited six CapitaLand projects in Shanghai, Hangzhou and Suzhou (1 residential, 1 serviced apartment and 4 mixed developments) recently. These projects demonstrate the company’s ability to develop projects across a range of sub-asset classes. We remain positive post-visit and maintain our BUY rating and SGD3.88 TP on the stock.
Geographical focus, expect record year of home sales
China accounts for 46% of total assets for CapitaLand and is a key market for the group. The company will stay within its area of competency and continue to focus on projects in Tier 1 and upper Tier 2 cities. Home sales in the country have benefited from a series of policy easing and management now expects a record year of sales with around 8,000 units worth CNY14b in value.
New funding sources, land banking strategy
The company is exploring options to tap new sources of funding that could lower its financing costs in the country. It prefers to replenish its land bank via M&A or JVs instead of land auctions as land prices have appreciated at a faster pace than home prices. It would alsolook to acquire land as a group which would harness its strength as a developer of integrated projects and provide opportunities across sub asset classes.
Competitive advantages, reiterates ROE target
Management sees its relationships with tenants and customers as a competitive advantage that is hard to replicate. It reiterated its ROE target of 8-12% and sees double digit returns for its projects in China as a key driver of this target. (Read Report)
Read Related Report
1) CapitaLand - Visit to East China by CIMB Research, published on 19 November 2015
Source : Maybank Kim Eng Research