Last Tuesday, property giant CapitaLand reported its fourth quarter profit before market open. The day after its results announcement, CapitaLand’s stock price closed at its highest since May 2013. The stock has been enjoying good momentum since the start of the year, outperforming the benchmark STI as it rallies 9.7% from $3.30 in January this year to its current $3.63 versus the STI’s +1.7% year-to-date performance.

Nevertheless, Macquarie Equities Research (MER) believes that the stock is still cheap and has room to run. In a research report released on 17 February 2015, MER explains why…
 
Event
On 17 February, CapitaLand reported fourth quarter 2014 clean profits after tax and minority interest (PATMI) of S$283.6m (+54% year-on year; +120% quarter-on-quarter), broadly in line with MER estimates. MER is around 7-12% above consensus for the full year 2014 to 2015. A final dividend of 9 cent was declared, implying a 33% payout ratio and 2.5% dividend yield (on yesterday’s closing price). MER reiterates their Outperform rating on the stock.
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Impact
Results highlights. CapitaLand’s retail division, CapitaMalls Asia (contributing around 40% of group’s earning before interest and tax) traded well. On a same mall basis, CapitaLand Singapore and China malls registered healthy net profit interest year-on-year (YoY) growth of 2.5% and 19.9% in 2014. Going forward, MER expects to see strong contribution from this division as only 68% of CapitaMalls Asia’s asset value is stabilized.
 
On track to deliver 8-12% medium term return on equity (ROE). Excluding impairment losses, 2014 ROE came in at 8.2% up from 6.7% in 2013. Given the healthy pipeline of development projects (S$14bn by project development value) over the next four years and good execution track record, MER remains confident of CapitaLand’s ability to generate +20% earnings growth and reach its medium term ROE target.
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Action and recommendation
Reiterate Outperform. Despite outperforming the benchmark STI by 6% year-to-date (as of the date of report on 17 February), MER thinks the stock is still cheap and has room to run. It is trading at 0.93x 2014 price-to-book, offering over 20% year-on-year earnings per share growth over the next two years.

MER has an Outperform rating on CapitaLand with a 12-month price target of S$5.11, 40% higher from its Monday closing price.

Source: Macquarie Research - 24 Feb 2015