Capitaland 2Q2018 results

Capitaland china

Capitaland released a respectable set of results for 2Q2018. The following are excerpts from various equity research houses on the company’s performance.

CapitaLand reported 2Q18 net profits of S$605.5m, EPS of 14.4cts, +5.1% YoY. Core net profit of S$196.0m (-5.6% YoY) was below our expectation of S$226m, due mainly to lower residential profit recognition.

Result highlights. Core profits was underpinned by higher contribution from newly acquired or opened malls and offices. Active asset recycling, with S$1.8bn of new investments and S$3.1bn of divestments (which surpassed the S$3bn target for this FY). Net revaluation gains lifted book value +4.1% to S$4.52, implying 0.69x P/BV.

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ROE Tracking at 10%, annualized. Achieving its S$3bn full year divestment target within 1H, an elevated pace of asset recycling drove 1H18 ROE to 5%. NAV grew 4% HoH to S$4.52/shr, as revaluation gains added 2% to NAV in the quarter.

Healthy investment property portfolio trends. China malls same mall NPI +7.2% YoY with NPI yield improvement of +4.2% in Tier 1 and +13.5% in Tier 2 cities. Raffles City China projects continue to improve, with NPI growth of 2-4% YoY on strong committed occupancy rates of ~95%. Ascott added 5,348 units, bringing total to 75,391 units (as at 27 July 2018), and well on track to exceed its 80,000 target this year. Ascott’s same store RevPAU +4% YoY. CapitaLand recently entered into a recent strategic alliance in the Philippines with Cebu Landmasters Inc. to manage 1,600 units by 2022.

Capital allocation 50:50 split between emerging markets (EM) and developed markets (DM), compared to existing 57% and 43% from DM and EM, respectively. On the other hand, CAPL is targeting an 80:20 asset mix between investment properties (IP) and trading properties (TP), compared to current 82% and 18% from IP and TP, respectively. Including CCT’s recent S$0.5b divestment of Twenty Anson, CAPL has sold S$3.1b of assets in 1H18, exceeding its targeted S$3b/year.

Resi contribution lower as expected. China sales -43% YoY to RMB4.9bn in 1H18 as some launches were deferred due to tighter government measures. CapitaLand handed over 21% more units YoY but value was -33%YoY at RMB4.1bn in China resi as projects handed over had lower selling prices. CapitaLand expects to hand over 50% of ~8,000 units sold worth RMB16.2bn in 2H18. CapitaLand has very little exposure to Singapore resi, with 99% of units sold (33 units left). Only major landbank is from the purchase of Pearl Bank apartments for redevelopment, which received Strata Title Board approval on 1 Aug 2018.

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Strong residential demand in Vietnam, with 93% of all launched units sold. Handover value increased to S$132m ytd (vs S$71m in 1H17),  after 724 residential units were handed over in 1H18.

Slowdown in Singapore residential, due to cooling measures. Buyers are affected due to the increased ABSD and tighter LTV limits, and consequently the Group expects residential sales to moderate in the second half of this year. Slow-down in residential sales in Singapore. 1H18 saw residential sales value in Singapore decline 64% yoy to $286m, with 77 units sold; the gross number of residential units sold in 1H18 declined to 77 units (vs 187 in 1H17). Newly launched projects in Singapore saw strong demand with 99% of units sold.

High committed occupancies at Raffles City developments in China. Occupancies for the retail sections of the Raffles City developments were strong across the board, with over 96% occupancy across the various cities, such as Shanghai (100%), Beijing (100%), Changdu (100%), NingBo (100%), Chongqing (96%), Shenzhen (99%), Hangzhou (99%).

Gearing stable at 50% with 69% of debt on fixed rates with implied interest cost 10bp lower HoH at 3.1%. Group managed AUM +2.1% QoQ to S$93.1bn.

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CapitaLand provides investors with stable recurrent income (~82% of assets), which is highly predictable and reduces earnings risk. We believe CAPL is attractive, with the shares trading on 0.69x P/BV, a 42% discount to our RNAV and 3.8% yield. Outperform maintained.