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CapitaLand still a 'buy' with its diversified portfolio

Samantha Chiew
Samantha Chiew • 4 min read
CapitaLand still a 'buy' with its diversified portfolio
Analysts are all smiles on CapitaLand
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SINGAPORE (May 5): Analysts are all positive on CapitaLand following the group’s business update announcement yesterday, which warned that its 1Q20 operating performance across Singapore, China, India, Vietnam, and the other countries it operates in, has been affected by the Covid-19 pandemic.

The group did not report any overall financial figures as it has adopted the announcement of half-yearly financial statements with effect from the current FY2020. CapitaLand Limited’s next financial results announcement will be for the half-year period ending June 30.

See: CapitaLand reports 'relative resilience' in office and business arm in 1Q business update

On the back of this, RHB Group Research is reiterating its “buy” call on CapitaLand with a target price of $4.00 from $4.20 previously.

In a Tuesday report, analyst Vijay Natarajan says, “CapitaLand remains our preferred sector pick for its diversified portfolio, with a high proportion of recurring income offering resilience. We see good value at current share price levels, as the stock is trading at 0.6 times price-to-book value.”

In China, the group’s portfolio is showing signs that it is bouncing back post-lockdown.

Residential sales across its China projects rebounded strongly in March (higher than Jan-Feb combined sales), after some lockdown measures were lifted. It charted CNY900m in sales for 1Q20. Pricing was higher than previous project phases, and management guided that GPM across its projects remain at over 15%.

In terms of retail operations in China, all 15 malls that were closed during the lockdown have since reopened, with 85% of tenants back in operation. Full rental rebates were offered for Wuhan malls (Jan 25 to Feb 13), and 50% rent rebates were offered to remaining malls (Jan 25 to Feb 9). Shopper traffic has also been steadily increasing m-o-m from February lows.

In Singapore, CapitaLand’s retail and lodging portfolio will see the biggest impact, especially the malls due to the circuit breaker measures.

CapitaLand is offering 2-month rental rebates (including property tax rebates), and offsetting one month of security deposits. Business parks and offices, which account for 30% of EBIT, have largely remained resilient. Most of its existing residential launches have seen good take-up rates (>80% sold), so management does not see any need to pare down prices to move inventory.

In 1Q20, CapitaLand made gross investments of $447 million (mainly across business parks and the logistics space) and gross divestments of $373 million. It still plans to achieve its $3 billion per annum of divestment target this year, despite market challenges. It will also look out for select acquisition opportunities, mainly on new economy assets (business parks, logistics and data centres) and possibly acquire new business too, if the current crisis presents good opportunities.

Similarly, CGS-CIMB Research is keeping its “add” recommendation on CapitaLand with a target price of $3.52 from $3.60 previously.

While China, Singapore and Japan retail occupancy stayed high, shopper footfalls and tenants sales fell some 4% y-o-y in 1Q20.

As China’s lockdown is ending, shopper traffic started to recover, although still lower y-o-y.

In a Monday report, analyst Lock Mun Yee says, “The commercial, business parks and logistics properties across its geographic footprint performed better with occupancy exceeding 85% and enjoying positive rental reversion of 4-21%. That said, tenants remain cautious and we anticipate rental reversions to moderate ahead.”

As for the group’s lodging business, revenue per available unit (REVPAU) declined an average 22% y-o-y in 1Q20; 52 of its total 485 properties remained closed at end-April.

“This will likely continue to put pressure on occupancy and REVPAU. 1Q20 fee income expanded y-o-y and we anticipate it to remain largely stable in the near term, but slower asset recycling or asset value depreciation could adversely impact this revenue source,” adds Lock.

As at 1.30pm, shares in CapitaLand are trading at $2.91 or 0.6 times FY20 book with a dividend yield of 4.2%, according to CGS-CIMB’s estimates.

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