Yesterday, CapitaLand finished in the negative zone for the first time in five days, sliding 0.9% to $3.23. The stock had closed higher every single day last week, gaining 4.2% in total versus the STI’s +0.7%.
 
It was also a week where CapitaLand released their second quarter earnings announcement. Following which, Macquarie Equities Research (MER) released a research report last Thursday evening, analysing the company’s results and concluding that the stock was trading at  trough valuation.

The following are excerpts from the MER report dated 25 July 2013.
 
2Q13 result highlights. Prior to the market’s open last Thursday, CapitaLand reported second quarter earnings (2Q13) net profits of S$383.1m, with earnings per share (EPS) of 9.0 S cents (-1.1% YoY). Stripping out revaluation gains of S$214.1m and portfolio gains of S$61.0m, core profits were S$108.0m, +20% YoY.
 
Results would have been +50.3% to S$135.7m if we excluded the one-off loss of S$27.7m incurred in the CB repurchase. Core profits in 1H13 reached S$241.3m, +43% YoY (adjusted +59.5% YoY).
 
Operational update. CapitaLand made S$1.6bn in new investments YTD. Residential sales in Singapore added 164% YoY to 683 units (sales value +243% YoY to S$1.6bn). China residential sales +58% YoY to 1,691 units (sales value +43% YoY to RMB3.2bn).
 
ALZ will continue as a key investment. The group received several indicative proposals from various parties for parts and all of the business of ALZ. CapitaLand completed the strategic review and concluded that no proposal was able to be developed that was superior to business as usual.
 
Gearing of 45%. This is unchanged from Dec 12, but fixed rate debt is now 77% from 72% earlier. The group stated a return-on-equity (RoE) target of 8% to 12% on a sustainable basis.
 
Action and recommendation
MER believes the share price correction year-to-date reflects the concerns over a slowing China economy (40% of assets) and the outcome of the ALZ strategic review.
 
The simpler and nimbler corporate structure articulated by CEO Lim Ming Yan in January 2013 should help lay the foundation and framework to ensure the group to have a sharper focus and capitalise on new investment opportunities, particularly in large scale, mixed-used developments.
 
Meanwhile, MER sees valuation support for the stock, trading at a 38% discount to their RNAV and at 0.87x P/BV. MER has an Outperform rating on the stock with a 12-month target price of $4.16.

Source: Macquarie Research - 30 Jul 2013