• 1Q18 adjusted operating PATMI +25%
• More launches in China ahead
• Bought back shares at ~0.8x book

1Q18 Results In-line With Expectations

CapitaLand’s 1Q18 results were in-line with our expectations. Revenue and gross profit surged 53.3% and 78.9% YoY to S$1,375.5m and S$602.9m, respectively. This was underpinned largely by stronger contributions from development projects in Singapore and China, rental income from newly opened and acquired properties and the consolidation of CMT, CRCT and RCS Trust from 3Q17.

PATMI, however, dipped 18.8% YoY to S$319.1m due mainly to the absence of a S$160.9m gain from the sale of The Nassim in 1Q17. Excluding this and other one-off items such as portfolio gains and revaluation gains and impairments, CapitaLand’s adjusted operating PATMI grew 25.0% YoY to S$228.7m, forming 24.8% of our FY18 forecast.

Expecting Sales Momentum in China to Pick Up

During the quarter, management made divestments amounting to ~S$1.9b, arising largely from the divestment of 20 malls across 19 cities in China. CapitaLand thus remains on track to meet its annual S$3b capital recycling target. CapitaLand sold 998 units with a total sales value of RMB1.68b in China in 1Q18. This represented a decline of 53.6% and 57.4% YoY, respectively, as there were fewer units available for sale.

Looking ahead, we expect sales momentum to pick up as CapitaLand has 5,725 launch-ready units over 2Q-4Q18. More than 8k units sold previously with a sales value of ~RMB15.1b are also expected to be handed over from 2Q18 onwards, with 70% of this expected to be recognised in the remainder of FY18. In Singapore, only 40 units were sold (-52.4%) with a value of S$150m (-70.2%) due to its low inventory level. We note that there was a writeback of provision for Victoria Park Villas and Bedok Residences in Singapore, with both projects now 100% sold.

Active Share Buybacks to Bolster Shareholder Value

CapitaLand actively repurchased back 57.6m shares (~1.4% of total issued shares) for S$208.8m from 20 Feb to 13 Apr this year, implying an average purchase price of ~S$3.62, or at 0.8x book value. We maintain our forecasts and RNAV-derived fair value estimate of S$4.26.

Source: OCBC Research - 2 May 2018