• 2Q16 results within expectations
• Chinese home sales remains firm
• Cognizant of RMB risks

2Q16 results in line

2Q16 PATMI decreased 36.6% YoY to S$294.0m mainly due to lower fair revaluation gains from properties. We highlight that, in 2Q15, there was a one-off fair value gain of S$125.9m from the change of use of development projects, excluding which the group’s adjusted operating PATMI in 2Q16 would have risen 31.8% to S$171.6m given firmer performances from Chinese shopping malls and developments, contributions from CapitaGreen and the group’s serviced residences business.

In terms of the topline, group revenues increased 9.7% to S$1,131.7m for the quarter due to strong contributions from the property development segment in China and Singapore and higher income from CapitaGreen and the group’s serviced residence business. Overall, we judge this quarter’s numbers to be broadly in line with expectations, and 1H16 revenues and PATMI now constitute 48.9% and 57.5% of our full year forecast, respectively.

Cognizant of RMB risk; exposure is well managed

The group sold 2.9k Chinese homes in 2Q16, up marginally versus the 2.7k units sold in 2Q15, and has ~3k units available for launch in the remainder of this year. Home sales in Singapore also saw a significant uptick, with 304 units now sold in 1H16 (versus 106 units in the same period next year) and most sales coming from a strong launch at Nine Cairnhill.

In light of the recent depreciation of the RMB, we understand from management that a 1% depreciation of the RMB against the SGD would impact net profit and shareholder funds by 0.2% and 0.9%, respectively. While we are cognizant of the risks of further RMB depreciation, our assessment of key drivers today points to a likely base case scenario for a fairly orderly RMB exchange regime ahead.

In addition, we highlight that CapitaLand is naturally hedged through its RMB borrowings (which it can further increase) and has the scope to raise or recycle capital through RMB-denominated private equity funds to mitigate its RMB exposure. Maintain BUY with an unchanged fair value estimate of S$3.68.  

Source: OCBC Research - 5 Aug 2016