CapitaLand Investment’s (CLI) maiden share buyback of 2 million shares is “a pleasant surprise”, says Citi Research analyst Brandon Lee. 

“While we would have liked CLI to cancel the shares, we see the move as a great start for a company that listed less than a month ago, whereas the last share buyback done by CapitaLand (CAPL) took place over three years ago,” writes Lee in an Oct 12 note. 

Lee is recommending “buy” on CapitaLand Investment with a target price of $4.65, which represents an upside of 38.8%.

CLI bought back 2 million shares, or 0.04% of the share base, for $6.8 million on Oct 11. 

The average purchase price between $3.37 and $3.38 is slightly above the last closing price of $3.35. 

See: CapitaLand Investment chairman Ko snaps up $2 million worth of shares on trading debut day

See also: CapitaLand Investment chairman Ko buys another $2.06 million worth of shares

CLI’s share purchase mandate stands at 260.2 million shares, or 5% of the share base, and management’s current intention for the treasury shares is to use them in employee share scheme, says Lee, as this lets management take advantage of tax deductions and mitigates dilution impact on existing shareholders. 

“Moving forward, subject to the prevailing market conditions, CLI intends to continue making share purchases via market purchases on SGX to increase its number of treasury shares for partially or fully satisfying any share awards obligations under its share schemes,” writes Lee.

Lee views CLI’s maiden share buyback positively on two key reasons. 

Firstly, it sends an indirect signal to the market that management views the current 1Q2021 price-to-book (P/B) multiple of 1.15 times, or $3.38, as an undemanding price for the stock, says Lee. 

Secondly, the move will improve both return on equity and return on assets, he adds.  

On Sept 20 and 23, CLI’s chairman Miguel Ko purchased 0.7 million and 0.6 million shares respectively, both times forking out $2.1 million. 

For more stories about where the money flows, click here for our Capital section

Prior to listing of CLI on Sept 20, CAPL last’s share buyback occurred from February to August 2018, where a total of 95.7 million shares were bought back for some $341.8 million. 

Separately, CLI’s 31%-owned CapitaLand China Trust (CLCT) has announced the acquisition of four logistics properties in China for RMB1.7 billion, or $350.7 million.

This will expand CLCT’s assets under management by 8% to $4.7 billion. “Aside from a one-off acquisition fee of $3.5 million, we estimate CLI will earn incremental recurring fee-related earnings (FRE) of $2.5 million, comprising $1.6 million in REIT fees and $0.9 million in property management fees.”

Shares in CapitaLand Investment closed 3 cents higher, or 0.90% up, at $3.38 on Oct 12.

Photo: Bloomberg