• 2Q14 numbers in line
• Prudent exposure to resi mkts
• On target for 8%-12% ROE

2Q14 figures mostly within expectations

CapitaLand’s 2Q14 PATMI increased 14.5% YoY to S$438.7m, mostly due to improved operating profits, higher revaluation gains from investment properties and write-back of impairments. Year to date PATMI cumulates to S$621.5m, which we judge to be broadly within expectations. Topline for the quarter came in at S$875.3m, down 13.2% YoY, mostly due to lower revenues from development projects in Singapore and China, partially offset by higher sales in development projects in Vietnam and higher rental revenues from the group’s shopping mall and serviced residences businesses.

Prudent exposure to SG and CN resi markets

Over 2Q14, we saw 161 residential units being sold in Singapore, up versus the 139 units sold in 2Q13. Most of the units sold in 1H14 were from Sky Habitat (63% sold as at end Jun-14) as the group continued to implement price incentives to reduce exposure to the challenging domestic residential market. In China, 2Q14 residential sales dipped 44% to 1,054 units though we expect the rate of sales to increase ahead as the group looks to launch about 7.5k units over the remainder of FY14. Management indicated that the group’s risk exposure to the uncertain residential sectors in Singapore and China remain at prudent levels at ~26% of total assets (excl. treasury cash), while remaining assets comprise investment properties with recurring income profiles.

Maintain BUY with unchanged S$3.79 FV

CapitaMalls Asia continued to see firm numbers across its mall portfolio. Same-mall NPI in 1H14 increased 4.3% and 20.9% YoY in Singapore and China, respectively. Chinese shopper traffic also increased 6.1% over the period, while Singapore saw a mild dip of 3.0%. The group’s balance sheet remained fairly healthy with S$2.5b in cash and 58% net gearing, notwithstanding the recent de-listing of CapitaMalls Asia, and management reports that it remains on target to deliver an ROE of 8% - 12% in the next 3-5 years. Maintain BUY with an unchanged FV estimate of S$3.79.

Source: OCBC Research - 6 Aug 2014