• CapitaLand (SGX:C31) remains our preferred sector pick for its diversified portfolio, with a high proportion of recurring income offering resilience.
• We see good value at current CapitaLand share price levels, as the stock is trading at 0.6x P/BV.

China Portfolio Bouncing Back Post Lockdown

• Residential sales across its China projects rebounded strongly in March (higher than Jan-Feb combined sales), after some lockdown measures were lifted. It charted CNY900m in sales for 1Q20. Pricing was higher than previous project phases, and management guided that GPM across its projects remain at over 15%.
• In terms of retail operations, all 15 malls that were closed during the lockdown have since reopened, with 85% of tenants back in operation. Full rental rebates were offered for Wuhan malls (25 Jan to 13 Feb), and 50% rent rebates were offered to remaining malls (25 Jan to 9 Feb). Shopper traffic has also been steadily increasing m-o-m from February lows.

Singapore Retail and Lodging Portfolio to See the Biggest Impact

• Malls have seen the biggest impact from the “circuit breaker” and tenant support measures announced by the Government. CapitaLand (SGX:C31) is offering 2-month rental rebates (including property tax rebates), and offsetting one month of security deposits.
• Business parks and offices, which account for 30% of EBIT, have largely remained resilient.
• Most of its existing residential launches have seen good take-up rates ( > 80% sold), so management does not see any need to pare down prices to move inventory.

Fund Management Income for 1Q20 Rose 54.2% Y-o-y

• Fund management income for 1Q20 rose 54.2% y-o-y to SGD76.5m driven by the acquisition of Ascendas-Singbridge’s portfolio last year. CapitaLand (SGX:C31)’s assets under management are worth SGD75bn, via seven REITs and business trusts, as well as 25 private equity funds. It targets to increase this to SGD100bn, by 2023. It also has SGD1.3bn in third-party capital available for acquisitions.
• Lodging portfolio fee income dropped 9% y-o-y to SGD54m, due to the closure of some assets.

Acquisitions and Divestments

• In 1Q20, CapitaLand (SGX:C31) made gross investments of SGD447m (mainly across business parks and the logistics space) and gross divestments of SGD373m. It still plans to achieve its SGD3bn pa divestment target this year, despite market challenges.
• CapitaLand (SGX:C31) will also look out for select acquisition opportunities, mainly on new economy assets (business parks, logistics and data centres) and possibly acquire new business too, if the current crisis presents good opportunities.

Earnings and TP Adjustments

• We cut FY20-22F net profit by 10-14% to factoring in lower residential sales, rental rebates, and lower gains. We also raise our RNAV discount by 5ppt to 25%.
• BUY. Target Price: $4.00.

Source: RHB Invest Research - 5 May 2020