SINGAPORE (Nov 16): RHB Research and OCBC Investment Research are maintaining CapitaLand at “buy” after 3Q18 numbers came in line with expectations.

CapitaLand’s 3Q18 gross profit jumped 15.3% to $583.7 million but revenue fell largely due to lower contributions from projects in Singapore and China. PATMI and operating PATMI rose 13.6% and 13.3% y-o-y to $362.2 million and $233.7 million, respectively.

OCBC analyst Andy Wong Teck Ching says CapitaLand in China has been actively reconstituting its portfolio, making total investments of $6.1 billion year to date versus divestments of $4 billion, which generated gains of $288.7 million.

Some of the investments include the acquisition of 16 freehold multi-family properties in the US for $1.14 billion, joint acquisition of its third Raffles City integrated development in Shanghai with GIC and two prime residential sites in Guangzhou.

“Given CapitaLand’s active capital recycling strategy and continued efforts to boost the value of its properties, it generated a ROE of 6.9% for 9M18,” says Wong, “This puts it well on track to deliver its annual ROE target of at least 8%. CapitaLand’s balance sheet also remains strong, with a net gearing ratio of 0.51x.”

In China, CapitaLand has close to 3,500 residential units ready to be released for sale in 4Q18. Some RMB6.4 billion ($1.3 billion) of revenue from China is expected to be recognised during the quarter, which is significant given that 9M18 value recognised was RMB6.2 billion.

RHB analyst Vijay Natarajan says CapitaLand’s diversified assets and geographical presence will help mitigate the current market uncertainties and aid in efforts to better allocate capital

In October, CapitaLand launched four residential projects in Chengdu, Wuhan, Xi’an and Kunshan and sold over 90% of units across all the projects. This indicates healthy demand, despite the cooling measures on the sector in China, says Natarajan.

In Singapore, Jewel Changi Airport will open by April and is now about 95% pre-committed. Natarajan expects the mall to contribute $40 million in recurring income, upon stabilisation.

For residential projects, CapitaLand has sold 99% of its local launched inventory. Its two 2019 launch pipeline -- the Pearl Bank site and Sengkang mixed-use project -- can add 1,500 units.

RHB and OCBC have target prices of $4.00 and $3.96 pegged at a 20% discount to RNAV.

Year to date, shares in CapitaLand are down 11.8% at $3.13.