UOB Kay Hian has initiated coverage on CapitaLand Investment (CLI) with a “buy” recommendation and target price of $4.02.
The estimated target price includes CLI’s fee-income platform, which comprises its investment management (IM), property management (PM) and lodging management (LM) platforms. It also includes CLI’s investment properties, which the group accounts for on its balance sheet, as well as its various stakes in its listed REITs and unlisted funds, says analyst Adrian Loh.
“Compared with its regional and global peers, CLI’s valuations appear inexpensive with 2022 price-to-net asset value (P/NAV) and EV/EBITDA at 1.4 times and 21.1 times respectively,” he writes in a Feb 9 report.
CLI is one of Asia’s largest real estate investment managers (REIMs) with coverage in over 240 cities across over 30 countries.
The REIM has assets under management (AUM) totalling over $115 billion as at end-FY2020, with over 80% concentrated in Asia. Singapore, China and India are CLI’s core markets.
Of its total AUM, $83 billion, or 72% are funds under management (FUM), which the group intends to grow to over $100 billion by 2023 and, or 2024.
See also: RHB upgrades estimates on SGX following strong securities data but remains 'neutral'
“Research by Hodesweill & Associates shows that institutional investors have consistently raised their target allocations to real estate annually for the past eight years, though institutions remain under-allocated to real estate in 2020, particularly in the Asia-Pacific region,” says Loh.
“In our view, there may be potential for increased capital inflows into real estate private equity funds and listed REITs, although this may be tempered somewhat by this year’s US rate hikes,” he adds.
CLI has also enjoyed an impressive growth record over the period of 2017 to 2020, with its FUM growing at a 15% compound annual growth rate (CAGR) to $78 billion.
On this, Loh estimates CLI’s FUM fee income to grow at a 14% CAGR over 2020-2023.
“In addition, the company has over $10 billion in assets that it will look to monetise in the next few years,” says Loh.
Loh also forecasts CLI to see 39% earnings growth over the 2021-2023 period driven by FUM growth and a normalisation of investment property earnings after the Covid-19 peak.
Amongst the counters pegged as reopening plays, CLI is seen as an “excellent proxy” to the reopening of Singapore’s economy following the Covid-19 peak, as it has about 83% of its AUM in traditional real estate segments such as office, lodging and retail, notes Loh.
Lodging in particular has seen a growth recovery in the past 12 months given the REIM’s exposure to long-stay assets.
The segment should also give CLI upside once global travel resumes.
In addition, CLI also has $1 billion in new logistics and data centre funds which it has successfully raised in the past 18 months.
For more stories about where money flows, click here for Capital Section
In 2020, CLI’s fee income-related business contributed about 40% to its total revenue. This was supported by average EBITDA margins of 56% over 2017 to 2020.
“The company has a strong and stable platform that generates fee income from its investment and asset management of listed REITs and unlisted funds, lodging management and property management across its asset classes,” says Loh.
As at 3.46pm, shares in CLI are trading 9 cents higher or 2.54% up at $3.63, or an FY2021 P/B of 1.5 times and dividend yield of 1.7%.
Photo: CapitaLand
