Friday, November 1, 2013

CapitaLand: More residential sales activity (DBSV)

CapitaLand:
BUY S$3.16
STI : 3,230.44
Price Target : 12-month S$ 3.93 (Prev S$ 4.07)
More residential sales activity

•Results in line with estimates, makes up 73% of our full year forecast
•China and Singapore to be the major drivers to profit growth in FY14
•Maintain Buy, revised TP to S$3.93

Highlights
Results within expectations. Capitaland reported 3Q PATMI of S$135.5m, bringing 9M13 earnings to S$706.8m or 73% of our full year forecast. Reported 3Q results were down 9% y-o-y on smaller divestment gains.
Stripping out the one-off items, operating PATMI came in at S$101.8m or 13% higher y-o-y, led by higher Singapore and China residential profits and better shopping mall income.
Improvement across the board. The jump in Spore residential profits was due to a tripling in sales volume to 1,151 units for 9M13, valued at S$2.2bn. Notable projects include SkyVue (86% sold) as well as The Interlace receiving TOP ahead of schedule and its share of profits from Bedok Residences. In China, profits were taken in from the 234 units handed over in 3Q including apartments from Paragon, bringing recognition to date to 1,587 units. Contributions from the shopping mall rental business were also higher y-o-y on increased income from China and Singapore.

Our View
China and Singapore to underpin profit growth. Looking ahead, 4Q13 and FY14 contributions are likely to be led by higher residential sales in Singapore and China as well as better retail mall leasing income. In China, it has locked in Rmb4.3m of new sales YTD. This in addition to the 1800 units to be handed over in 4Q, and should underpin China residential profits. In Singapore, it has a remaining 1,239 units yet to be sold from various projects. Other business segments such as the retail mall and serviced apartment business units should continue to deliver better y-o-y performance on new mall completions and securing new management contracts.
More acquisition activities. Gearing remains healthy at 0.44x and this should continue to position the group strongly to tap new opportunities including landbanking in Singapore as well as strategic acquisitions of landbank and real estate assets in China. In addition, the recent purchase of the Big Orange self storage operator in Singapore in Sep 13 has propelled StorHub into the largest self storage operator in the country with >10,000 storage units.

Recommendation
Maintain Buy, TP adjusted by 3% to S$3.93. Valuation of Capitaland remains cheap at 44% discount to RNAV of S$5.62. We have tweaked RNAV and TP to reflect changes in the share prices of its listed stakes such as Australand and Lai Fung. Our TP of S$3.93 is pegged at a 30% discount to RNAV. Maintain buy.


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