SINGAPORE (Feb 21): CGS-CIMB Research, DBS Vickers Securities and OCBC Investment Research are maintaining “buy” on CapitaLand with the respective price targets of $3.56, $3.62 and $3.98, after the group posted 71.2% higher earnings of $476 million for the 4Q ended Dec 2018.

In a Wednesday report, CGS-CIMB analyst Lock Mun Yee says she continues to like the stock for its robust residential sell-through rate in China, the management’s active capital recycling, and its proposed acquisition of Ascendas-Singbridge to create Asia’s largest diversified real estate group.  

Despite cutting FY19-20F earnings after tweaking residential margins and tax rate assumptions, especially in China, Lock’s revised target price is one cent higher than previously upon accounting for CapitaLand’s latest balance sheet metrics.

“As [CapitaLand’s] net debt-to-equity ratio is still healthy at 0.56 times, we anticipate the group to continue recycling and deploying capital into new investments… [The proposed acquisition of Ascendas-Singbridge] would strengthen the group’s presence in its core markets as well as provide it the scale to venture into new sectors such as logistics and business parks. This would enable to enable it to tap new growth opportunities in the medium-term,” comments Lock.

DBS analyst Derek Tan foresees CapitaLand’s FY20 PATMI hitting a decade-high given its strong income visibility, with more than RMB15.7 billion ($3.2 billion) in presales to be recognised from FY19 onwards.

Tan is also positive on the upcoming local residential launches of Pearl Bank Apartment and Sengkang Central in 2019.

Even with cooling measures expected to put a dent on potential investor demand, he believes Pearl Bank Apartment’s unique attributes, coupled with its prime location closed to the central business district (CBD), may attract buyers if it is priced well.

“We estimate a breakeven of S$2,200-2,300 psf. In addition, the launch of a mixed-use development in Sengkang Central (50%-50% JV with CDL) will offer an additional 700 units of residential land bank for the group in Singapore,” says the analyst.

OCBC’s slightly higher fair value estimate of $3.98, compared to $3.96 previously, comes even as the latest set of results fell slightly short of expectations.

“If we exclude the gain from the sale of Nassim in 1Q17, FY18 PATMI would instead have grown 13.8% [instead of falling 5.9% to $872.2 million, which formed 94.4% of FY18 forecasts],” says OCBC analyst Andy Wong in a Thursday report.

He also highlights how real estate assets under management (AUM) have crossed the $100 billion mark during the latest year under review, which is earlier than targeted.

“CapitaLand's real estate AUM rose 12% to S$100.1b, as at end-2018, surpassing its target to hit S$100b by 2020. Although headwinds remain in China, CapitaLand continues to hold an optimistic view on the outlook of the residential market, especially on Tier-1 and selected Tier-2 cities. Back home, CapitaLand remains open to land bank replenishment opportunities, but only if the price is right,” notes Wong.

As at 3.13pm, shares in CapitaLand are trading 6 cents higher at $3.49 or 0.75 times FY19F book value, according to CGS-CIMB estimates.