CapitaLand finished as the  biggest laggard in the benchmark STI yesterday with its 1% fall to $2.91. The move came on the back of the company’s results announcement before market open. Its full year results, which came in below Macquarie Equities Research’s (MER) expectations, nevertheless had the latter backing the company with an “Outperform” rating.
 
Below are excerpts from the MER report released yesterday afternoon, analysing CapitaLand’s results:
 
CapitaLand reported a full year 2013 (FY13) net profit of S$849.8m (earnings per share of 19.6 cents, -9.7% year-on-year). Excluding one-time loss from sale of Australand shares, net profit was +4% to S$970.6m. Stripping out net revaluation gains and net portfolio losses totalling S$322.1m, core net profit was S$527.7m, +43% year-on-year (YoY). This was slightly below MER’s expectations of S$590.6m. The group announced DPS of 8.0 cts, +14.3% YoY.
 
Impact
Results highlights. Revenue +20.5% YoY to S$4.0b, driven by CapitaLand China (+107.2% YoY) and CapitaMalls Asia (+49.3%). Core markets of Singapore and China accounted for 88% of FY13 group earnings before interest and tax (EBIT). Book value +6.5% to S$3.78. CapitaLand also made impairments totalling S$164.8m on specific projects, mainly in China, India, Middle East and Australia. This will provide a solid platform for growth over the next two years.
 
Resi sales strong in China and Singapore. In China, residential sales +16% YoY to 7,688 units but -7% YoY to RMB8.54bn in value. Likewise, Singapore saw +85% YoY to 1,260 units and +84% YoY to S$2.44bn in value. CapitaLand has a healthy pipeline of launched ready units in China (5 projects) and expect +30% in contract sales this year. In Singapore, the group expects to launch Marine Point (124 units). This year could see the maiden launch of the first residential project at Danga Bay, Iskandar, once the master plans are approved.
 
New investments of S$3.7bn in 2013. The investments were mainly in China and Singapore (together accounts for 83% of group assets). The moratorium on further sale of Australand shares will end in May. The group could consider further divestment at the right price, especially if there are opportunities to reinvest the proceeds in its core markets.
 
Gearing lowered from 45% to 34% due to the deconsolidation of Australand. Fixed-rate debt accounts for 69% of total. The two convertible bonds repurchased in 2013 will result in more than S$35m per annum in interest savings.
 
Action and recommendation
CapitaLand has corrected 11.0% in the past six months and 4.3% year-to-date. The shares are attractive, in our view, trading at a 42% discount to MER’s real net asset value of S$5.11 and at a 0.78x price-book value. Core earnings momentum is expected over the next two years from CapitaMalls Asia, profit recognition of its China residential projects and lower interest expenses.
 
MER has an Outperform rating and 12-month target price of $4.09. MER sees new investments; residential sales in China and Singapore and further divestment of Australand as potential stock price catalysts.

Source: Macquarie Research - 20 Feb 2014