No earnings surprise. For the first time since 2005, CapitaLand’s headline PATMI failed to cross the billion-dollar mark, as its FY12 PATMI came in at SGD930.3m, down 12% YoY. Excluding revaluation gains and impairments, core PATMI would have been SGD568.7m, which is a 1% YoY decline and largely in line with expectations. We remain positive on the stock and CapitaLand remains one of our toppicks in the Singapore developer space. Maintain BUY.

Significant contributions from CMA. CMA accounted for 33.5% of CapitaLand’s FY12 group EBIT of SGD2.0b, followed by its Singapore business division, which accounted for 25%. By geography, Singapore and China unsurprisingly accounted for 76.9% of the EBIT together, with Singapore alone accounting for 44.3%.

Positive sales momentum. In Singapore, CapitaLand achieved residential sales of SGD1.3b in 2013, marginally lower than the SGD1.35b achieved in 2011, despite selling fewer units (681 in 2012 vs 844 in 2011). As of 15 Feb 2013, the Group had already sold 395 units YTD, which is 58% of the units sold in the whole of last year. In China, its home sales improved by 116% YoY to 3,161 units in FY12. CapitaLand has ~4,000 units ready for launch in China this year, at an estimated value of RMB6b.

Focus on improving long-term ROE. A key message underlined by management was that its focus for FY13 is to improve long-term ROE on the back of its new organizational structure. The Group will stick to its core competencies under the four key businesses and deepen its presence in its key markets to reap economies of scale. In addition, its rationalization of its non-core businesses could lead to divestments this year. This is especially possible if more attractive bids are put in for Australand by its local competitors, such as GPT and Mirvac.

Maintain BUY. We view the management’s commitment to improve ROE favourably and continue to like CapitaLand for its diversified business. Maintain BUY with slightly higher target price of SGD4.30, still pegged to a 20% discount to RNAV. FY12 dividend is 7 cts/share.

Source: Maybank Kim Eng Research - 22 Feb 2013