• Operating PATMI boost from FV gains
• Chinese home sales still healthy
• Sharpening focus on technology

PATMI growth mainly due to FV gains

2Q15 PATMI increased 5.8% YoY to S$464.0m, mostly due to fair value gains arising from the change of use of two Chinese projects (The Paragon Tower 5 & 6, Raffles City Changning Tower 3) from construction for sale to investment properties; partially offset by an impairment charge for the ITC in Tianjin.

Overall, we judge this quarter’s results to be mostly in line with expectations and YTD operating PATMI now makes up 55.4% of our full year forecast. In terms of the topline, 2Q15 revenues improved 17.8% YoY given higher contributions from Chinese development projects and higher rental revenues from its shopping mall and serviced residence businesses, but partially offset by lower revenues from projects in Singapore and Vietnam.

Chinese home sales up 162% YoY in 2Q15

The pace of home sales in China picked up significantly in 2Q15 with 2,764 units sold – up 162% YoY versus the 1,054 units sold in 2Q14. That said, gross margins for the group’s Chinese residential segment have eased to around 20% currently and will likely continue to face downward pressure ahead.

In Singapore, CAPL sold 37 units worth S$106m over the quarter. CAPL’s domestic unsold inventory stock amounts to ~S$2.7b, which is about 7.6% of the group’s total assets. Management continues to hold a cautious stance on the domestic residential space and expects persistent headwinds from existing cooling measures. Numbers from the group’s retail mall portfolio remain decent; 1H15 same-mall NPI growth (100% basis) in

Singapore and China were up 2.8% and 9.1% respectively, while tenant sales also increased 1.0% and 11.9% respectively. We understand that the group is keen to sharpen its focus on technology’s role in real estate and has recently invested US$50m in Tujia, a Beijing-based online apartment-sharing business, and also formed a JV to operate and franchise a new brand of serviced apartments in China.

Maintain BUY with an unchanged fair value estimate of S$4.07.

Source: OCBC Research - 6 Aug 2015