• FY17 operating PATMI rose 5.0%
• ROE of 8.5%
• Pearl Bank acquisition to yield 800 units

4Q17 Results In-line With Expectations

CapitaLand’s 4Q17 results were in-line with expectations. Revenue dipped 34.6% YoY to S$1,212.6m largely due to lower completion and handover from development projects in China. Similarly, PATMI came in at S$267.7m, representing a decline of 37.8%. Operating PATMI was also down 44.9% YoY to S$159.4m. For FY17, CapitaLand’s revenue fell 12.2% to S$4,609.8m, but PATMI jumped 30.3% to S$1,550.7m.

Operating PATMI rose 5.0% to S$908.3m and this met 99.6% of Bloomberg consensus’ FY17 forecast. It achieved ROE of 8.5%, which was one year ahead of its 8% target. A final dividend of 12 S cents per share was declared (FY16: 10 S cents), and this translates into a healthy yield of 3.4% based on yesterday’s closing price of S$3.52.

Replenishing Its Singapore Land Bank

Separately, CapitaLand also announced that it has successfully acquired Pearl Bank Apartments through a private treaty collective sale for S$728m. Including a lease top-up premium estimated at S$201.4m, the total acquisition land price works out to be ~S$1,515 psf. We estimate a breakeven ASP of ~S$2k psf and potential selling prices of ~S$2.3k-S$2.4k psf. This project is expected to yield around 800 units, with potential launch and completion in late 1H19 and early 2023, respectively.

This acquisition comes at an opportune time, given CapitaLand’s low inventory of unsold units in Singapore. We expect CapitaLand to remain active in replenishing its Singapore land bank, although management said that it will continue to be disciplined in its approach. In China, CapitaLand has 3.8m sqm of land bank, which can last for another four years based on sales of ~1m sqm a year.

Aiming to Grow Its AUM and Recurring Income Streams

As at 31 Dec 2017, CapitaLand had real estate AUM of S$88.8b. It has set a target to grow this figure to S$100b by 2020. Management also reiterated its target of ~S$3b in divestments per year, with proceeds to be recycled into higher yielding projects. We fine-tune our assumptions following a change in analyst coverage. Our RNAV-derived fair value estimate increases from S$4.13 to S$4.26.

Source: OCBC Research - 14 Feb 2018