PhillipCapital is initiating an “accumulate” recommendation on CapitaLand Investment (CLI) with a target price of $4.00, representing a 19.6% upside from the market price.
According to analyst Natalie Ong, CLI has under its belt stable and recurring revenues from fees income and real estate investments.
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These segments contribute about 20% and about 80% of EBITDA respectively. Approximately 80% of fee income from the fund management is recurring in nature while the lodging platform generates franchising and management fees from predominantly third party-owned assets. Income generating assets held by CLI is also expected to deliver highly visible cashflows.
Meanwhile, Ong sees that growth for CLI will come from fee income, driven my fund management and lodging AUM.
“CLI has made great headway towards hitting its 2024 funds under management (FAUM) target of $100 billion,” says Ong.
Two new senior hires, Simon Treacy and Patrick Boocock, have been brought on to spearhead the growth of private funds. The lodging platform is also on track to surpass its 2023 target of 160,000 keys under management. CLI has already signed 8,300 keys in 8M21, bringing the number of keys to 130,900, of which, about 40% are still under development and have not begun contributing to revenue.
Ong is also positive on CLI’s asset recycling efforts, as its divestment targets are channelled into new economy sectors.
“CLI remains committed to its $3 billion divestment target, which will help replenish dry powder to be reinvested into new economy assets such as logistics, data centres, business parks, as well as lodging assets like PBSA and multifamily assets which provide stable returns. This helps to better diversify and keep the portfolio future ready,” says Ong.
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On the outlook, Ong sees that CLI’s property portfolio continues recovers on the back of a reopening and return-to-normalcy, while its investment management and lodging platform continues to receive growing demand from private capital and lodging owners. The group also remains committed to its $3 billion divestment target - monetising its balance sheet and rebalancing into new economy assets to keep its portfolio future ready.
As at 12.00pm, shares in CLI are trading at $3.40 or 16.6 times FY2021 earnings with a dividend yield of 2.4%.