DBS Group Research and CGS-CIMB Research has maintained their “Buy/Add” calls on CapitaLand (CAPL) despite a decline in profit after tax and minority interests (PATMI) in 1H2020.

DBS and CGS-CIMB have target prices of $3.70 and $3.42, respectively. 

DBS analysts Derek Tan and Rachel Tan said 1H20 PATMI declined as expected, weighed on by rebates for commercial division and closures in lodging division. Total PATMI fell 89% y-o-y to $96.6 million due to revaluation deficits recorded by its retail and commercial REITs. Excluding this, core PATMI came in at $261.2 million, down 27.7% y-o-y.

However, they note that there was a “gradual increase in metrics” in the retail division, as most retailers opened in July and the group indicated that tenant sales and traffic have been improving in recent months.

Across CAPL’s various markets, traffic has recovered post-lockdown. China leads the way with retail sales and traffic rebounding 75% and 66% in May and June respectively, compared to a year ago.

The analysts also say that CapitaLand Office and Business Parks (BP) remained resilient despite Covid-19 challenges with strong occupancy rates of 84% to 95% across their main geographies as of end-June 2020.

The BP & industrial properties have remained resilient throughout the Covid-19 outbreak with high committed occupancy rates of 88% to 98.4% across its geographies, while 89% of tenants have returned to work.

The group also reported positive rental reversion in its office and BP portfolio in 1H20.

Furthermore, CAPL’s lodging business has remained profitable despite the global travel bans  due to cost containment measures across the portfolio. The North Asia market (excluding China) & Singapore have been profitable, but this has been offset by losses in Europe, Southeast Asia (excluding Singapore).

Revenue per available room (RevPAR) dropped 43% in 1H20 to $64/unit, but occupancy rate was maintained at a profitable level of about 50%.

The analysts said with the group slowly reopening its hotels, an occupancy rate that is sustained at more than 50% levels despite the pandemic will bode well for the long-term outlook of the lodging segment.

CGS-CIMB analyst Lock Mun Yee largely concurred with the above points, but also highlighted that a strong China residential profit recognition was expected in 2H20. 

She noted that CAPL handed over about RMB 1.6 billion ($315 million) worth of China residential properties and achieved RMB 5.6billion in new sales in 1H20 as sales rebounded with the reopening of sales centres. It targets to recognise another RMB12.7billion worth of sales in 2H20. 

In Vietnam, it handed over $124 million worth of sales in 1H20, and another approximately $234 million of sales due to be billed in 2H20. In Singapore, it achieved $ 60million of residential sales and has about 1,800 units remaining in its launch pipeline.

“In the longer run, we believe that CAPL’s resilience is enhanced through its diversified business model,” says Lock, who notes that operating environment is likely to remain challenging in the near-term. 

As at 11.52 am, shares of CaptiaLand were trading at $2.75. up 1 cent or 0.3% higher. Price-to-book ratio for FY20 stood at 0.58, and dividend yield was forecasted at 4.38% by CGS-CIMB.