• The implied consideration for CapitaLand is at a 9-19% discount to IFA valuation.
• Its restructuring exercise should enable Capitaland Investment (CLI) to accelerate growth.
• Reiterate ADD rating on CapitaLand with an unchanged target price of S$4.04.

Release of IFA Valuation and Introductory Document for Capitaland Investment (CLI)

Restructuring for Faster Growth

• Capitaland Investment (CLI)’s business segments comprise investment impact of COVID-19 on its lodging business.
• We believe when operating conditions normalise, a recovery in contributions and asset values of its lodging, retail and office business could provide some tailwind to CLI’s earnings and valuations.

Capitaland Investment (CLI)’s Three-pronged Strategy to Drive Future Growth

• Capitaland Investment (CLI)’s growth strategy includes growing its FUM with a target of reaching S$100bn by 2024, expanding its lodging business through the scaling up of its asset-light management and franchise contracts, to reach 160k units under management by 2023, and to continue executing on its capital recycling strategy.
• Its recently-obtained private equity fund manager license in China to carry out RMB-denominated capital raising and provide fund management services for prospective RMB funds in China could also help accelerate its FUM growth strategy.
• In addition, as it has S$10bn worth of investment properties that could be monetised over the next 3-4 years, we anticipate asset and capital recycling to drive future returns.

Reiterate ADD Rating on CapitaLand

• We leave our FY21-23F earnings per potential further valuation upside with greater clarity to Capitaland Investment (CLI)’s valuations.

• Key potential catalyst for share price outperformance is a faster-than-projected pace of asset recycling.
• Downside risks include weaker-than-expected macro outlook that could slow its asset recycling activities.

• The letter by CapitaLand (SGX:C31)’s independent financial advisors (IFA) on its proposed restructuring exercise and the introductory document for Capitaland Investment (CLI) have been released.
• To recap, under this proposed exercise, for every 1 CapitaLand share, eligible shareholders will receive 1 CLI share, 0.155 CapitaLand Integrated Commercial Trust (CICT, SGX:C38U) units and S$0.951 cash, implying a consideration of S$4.102 (based on 1x Dec 2020 NAV of S$2.823 for CLI, and S$0.328 for CICT units based on a 1-month VWAP of S$2.12/CICT unit).
• The implied value is at a 9- 19% discount to the IFA valuation of S$4.47-4.90/CapitaLand share. An EGM for this proposed exercise is scheduled for 10 Aug 2021.
• If all approvals are obtained, CapitaLand will be delisted and Capitaland Investment (CLI) listed on 17 Sep 2021.

Source: CGS-CIMB Research - 21 Jul 2021