• CapitaLand's 4Q/FY19 core EPS of 9.6/23.7 Scts, were broadly in line, at 41%/102% of our FY19 forecasts.
• Achieved end-FY19 gearing of 0.63x; will tweak emerging/developed capital allocation.
• Reiterate ADD with Target Price SGD4.25.

4Q19 Results Highlights

• CapitaLand (SGX:C31) reported 46.3%/94.8% y-o-y growth in 4Q19 topline/PATMI to S$2.38bn/S$926.6m, lifted by better operating performance and higher portfolio and revaluation gains. 4Q19 core PATMI rose 96% y-o-y to S$418.3m (excluding Ascendas-Singbridge Pte Ltd, +33% y-o-y).
• ROE came in at a decade-high 10%. Operational earnings growth came from higher China development income, greater rental contributions from Singapore, China and the US, and higher fee income.
• CapitaLand proposed final DPS of 12 Scts, unchanged y-o-y.
• CapitaLand announced it will adopt half-yearly reporting from FY20 onwards.

Higher China Residential Handovers in 4Q

• In 4Q19, CapitaLand's China operations benefited from a higher handover of Rmb6.1bn worth of residential sales, increased retail mall NPI, and stronger rental income from business parks and industrial/logistics properties. CapitaLand has a remaining Rmb14.4bn worth of locked-in residential sales to be recognised from 2020 onwards.
• While its China sales were impacted by sales centre closures in Feb due to Covid-19 concerns, take up has improved since upon the reopening of these centres. Tenant sales and shopper traffic at its malls remained relatively robust, growing 5.4% and 3.6% y-o-y respectively in FY19.
• Amongst its portfolio of 48 malls in China, 12 are still closed since late-Jan due to Covid-19 concerns. While CapitaLand had announced a series of relief for its tenants, we expect the impact of these measures to be small to its overall bottomline.

Looking at Singapore Asset Renewal/redevelopment Opportunities

• In Singapore, CapitaLand sold S$661m worth of new homes in FY19. It is eyeing rejuvenation and redevelopment opportunities from its existing portfolio as well as potentially from new projects. It maintains a group divestment target of S$3bn for 2020, and we expect it to achieve this by further trimming its non-core assets, extracting value from existing properties, or recycling assets into its REITs/ fund platforms.

Achieved Gearing of 0.63x, Ahead of Its End-2020 Target

• Gearing declined to 0.63x at end-FY19. CapitaLand divested S$5.9bn worth of assets in FY19 and recycled capital into S$5.9bn worth of new investments. It indicated it would tweak its capital allocation towards a 50/50 developed/emerging market split vs. the current 43%/ 57%, while raising its India/Vietnam exposure within the emerging market capital portion.

Maintain ADD

• We lower our FY20-21F EPS by 3.3-4% post results. However, our RNAV rises to S$6.54 as we factor in a slight asset yield compression.
• Potential re-rating catalyst would come from accelerating growth across its expanded platform while downside risks include a hat could lead to slower recycling activities.

Source: CGS-CIMB Research - 26 Feb 2020