• CapitaLand’s 4Q18 earnings underpinned by China residential segment and contribution from new assets.
• Active capital recycling; proposed Ascendas Singbridge transaction to bring a new phase of growth.
• Maintain ADD with a slightly higher Target Price of S$3.56, still 35% discount to RNAV.

4Q18 Results Highlights

• CAPITALAND LIMITED (SGX:C31) reported 4Q18 PATMI of S$475.7m (+71.2% y-o-y) on a 34% improvement in revenue to S$1.2bn. The growth was underpinned by higher China residential property recognition, and contributions from newly acquired and operational properties.
• CapitaLand’s 4Q18 core PATMI of $213.8m was 26% higher y-o-y. For FY18, core PATMI of S$872.2m was 5.9% lower y-o-y due to a high base from one-off gain from sale of The Nassim in FY17. As a result, core FY18 EPS was 20.8 Scts, below our expectation at 77% of our FY18 forecast.
• CapitaLand proposed DPS of 12 Scts, unchanged y-o-y.

Robust China Residential Sell-through Rate

• In China, CapitaLand handed over 6,857 residential units valued at Rmb11.02bn in FY18, and achieved Rmb12.5bn of new sales in the same period, with a sell-through rate of 92%. As at Dec 2018, it has locked in presales of Rmb15.6bn, of which it expects Rmb10.9bn to be handed over in FY19. This provides strong visibility to China residential contributions. CapitaLand expects to release another 7,000 units for sale in FY19.
• In Singapore, CapitaLand has replenished its residential pipeline with Pearl Banks Apartments (slated to be launched in 2Q19) and the Sengkang Central mixed-use site.
• Meanwhile, in Vietnam, the group has locked in presales of S$745m, of which S$335m is to be settled in FY19.

Active Capital Recycling

• CapitaLand in FY18 divested S$4bn of assets and deployed S$6.11bn into new investments, particularly into multi-family lodging assets in the US and a 50% stake in the third Raffles City in Shanghai. As its net debt to equity ratio is still healthy at 0.56x, we anticipate the group to continue recycling and deploying capital into new investments.

Moving Into New Phase of Growth

• The proposed acquisition of Ascendas Singbridge to create Asia’s largest diversified real estate group would strengthen CapitaLand’s presence in its core markets as well as provide it the scale to venture into new sectors such as logistics and business parks. This would enable it to tap new growth opportunities in the medium term.
• Our current estimates have not included potential earnings or value accretion from this transaction.

Retain ADD Rating

• We cut our FY19-20F earnings post results, as we tweak our residential margins and tax rate assumptions, particularly for China. However, our RNAV and Target Price are raised a tad to S$5.48/S$3.56 as we update for the latest balance sheet metrics. Refer to attached PDF report for CapitaLand’s RNAV breakdown.
• Key potential stock catalyst would be further details on the Ascendas Singbridge transaction which we expect to be RNAV-accretive.
• Downside risks to our ADD call include slower capital deployment.

Source: CGS-CIMB Research - 20 Feb 2019