Reiterate BUY. Since CapitaLand reported its FY12 results, residential property policy concerns in both Singapore and China have affected its market value. While CapitaLand’s sales in China are likely to decelerate following a good 2H12, we are nonetheless of the opinion that the recent pullback offers an attractive entry-level for investors with a medium-term view. Reiterate BUY, with a target price of SGD4.30.

Not all about residential in China. With new home prices in China showing stronger-than-expected appreciation in January, the government is widely expected to introduce more measures in the coming months to rein in prices. We believe that such measures, when implemented, may decelerate home sales, but unlikely to materially impact CapitaLand’s profitability on their China residential projects. In addition, its retail business under CapitaMalls Asia (CMA SP) is gathering momentum, and is likely to underpin the medium term growth for CapitaLand in China. (Refer to report dated 6 Mar 2013 on CMA titled “Staying Ahead of the Curve in China”.)

Special dividend on the cards if Australand is sold. The divestment of CapitaLand’s 59% stake in Australand remains on the cards as fellow Australian developers GPT and Mirvac continue to be touted as interested parties. GPT already had an earlier bid for only Australand’s commercial and industrial portfolio rejected. Assuming a bid of 1.1x P/B for the entire Australand group (incl. residential business), CapitaLand’s 59% stake will be worth AUD1.3b. We estimate CapitaLand’s equity contributions over the years at around AUD880m, which suggests capital appreciation of nearly 48%. With potential cash proceeds of SGD1.6b, the payout of a special dividend is quite possible.

Patience will be rewarded. Following the organizational restructuring, we expect more focused investments within Singapore and China leveraged on economies of scale. We reiterate that CapitaLand is a long-term operator in these two key markets and remains in good shape to weather any headwinds. Its focus on improving ROEs can only bode well for shareholders.

Source: Maybank Kim Eng Research - 14 Mar 2013