CapitaLand reported its 2Q19 results which missed ours and the street’s expectations. Revenue declined 19.3% YoY to S$1,342.4m due largely to lower contributions from its residential projects in Singapore and China, but partially offset by contribution from acquisitions mainly from US and Europe.

PATMI fell 4.2% YoY to S$579.8m, due largely to the one-off transaction costs incurred on the acquisition of Ascendas-Singbridge (ASB). Excluding these, PATMI would have increased 1.7% YoY. Operating PATMI in 2Q19 came in at S$179.5m, a dip of 8.4% YoY and this accounted for 19.5% of our FY19 forecast.

For 1H19, CapitaLand’s revenue fell 21.6% to S$2,131.1m while operating PATMI slipped 14.9% to S$361.3m. The Group has continued to recycle its capital, with S$3.4b of divestments announced YTD (up till 6 Aug), and this has already exceeded its annual asset recycling target of S$3b.

Looking ahead, the 7.3k residential units with a value of RMB18.3b which were sold in China previously are expected to be handed over from 3Q19, of which ~50% of the value is expected to be recognised in 2H19.

We will provide more details after the analyst briefing. We currently have a BUY rating and S$4.04 fair value in CapitaLand.

Source: OCBC Research - 7 Aug 2019