3Q12 results were in line. CapitaLand’s 3Q12 PATMI came in at SGD148.5m, taking 9M12 PATMI to SGD667.6m (83.9% of our fullyear forecast). Excluding revaluation gains, 3Q12 core PATMI was up 85% YoY, but declined by 17% QoQ, boosted by divestment gains from Ascott Raffles Place and Ascott Guangzhou. Removing these, core earnings were largely in line with expectations.

CMA was a growth driver. CapitaMalls Asia (CMA SP) accounted for 31% of CapitaLand’s reported EBIT, mainly on the back of higher contribution from the four Japanese malls acquired earlier this year and higher management fees. We expect the retail property business via CMA to be a key growth driver for CapitaLand.

Improved home sales in China. In 3Q12, CapitaLand sold 911 homes in China, up from 812 units in 2Q12 and 325 units in 3Q11, with demand coming mainly from first-time buyers and upgraders. YTD, CapitaLand has sold 1,978 homes in China valued at RMB4.2b, with around another 800 units ready for launch. In Singapore, management feels that the latest measures to cap home loan tenure will not have significant short-term impact on new home demand. CapitaLand still plans to launch 70 new units at Sky Habitat and 300 units at d’Leedon by the end of this year.

Gearing inching up, but balance sheet is still healthy. CapitaLand’s net gearing edged up to 0.46x as of 3Q12, which in our opinion is still healthy. Cash position stood at SGD5.4b, providing ample financial buffer. We also think there could be opportunities for monetizing some assets, particularly at the CMA level for assets such as Queensbay Mall in Penang and ION Orchard in Singapore.

Buy for its diversity. We have raised our target price to SGD4.21 on the back of a higher RNAV for CMA, higher DDM valuation for CCT and higher market values for the other listed entities. Maintain BUY.

Source: Maybank Kim Eng Research - 31 Oct 2012