• FY19 revenue came in broadly in line at 105.6% of our estimates while DPS came in flat, meeting our 12cents forecast
• A strong set of results – achieved ROE of 10% after 10 years, due to higher PATMI across all segments – operating PATMI (+21%), portfolio gains (+25%) and revaluation gains (19%)
• Deleveraging achieved ahead of target, S$13bn headroom from cash and undrawn debt facilities to be deployed opportunistically.
• Maintain BUY with higher TP of $4.20

The Positives

+ Surpassed gearing target of 0.64x ahead end-2020 timeline. CAPL divested S$5.9bn worth of assets (double the S$3bn FY19 target), achieving net debt/equity of 0.63x as at end-2019. This affords the group a debt headroom of S$13.1bn (in cash and undrawn debt facilities) to redeploy capital. 64% of divestments were injected into listed REITs/BTs, which will grow AUM in the fund platform. CAPL maintains a divestment target of S$3bn for FY20.

+ Sold 5,268 units with sales value worth RMB13.2bn in FY19. This compares to the 4,938 units worth RMB12.5bn sold in FY18. The group estimates c.RMB10.1bn worth of units will be handed over and 7,000 units will be released for sale in 2020.

The Negatives

– Vietnam residential inventory running low, hampered by longer approvals process. While the group remains positive on Vietnam’s outlook, stricter approval process is an impediment to replenishing land bank and getting project approvals.

Outlook

We expect FY20e to be another active year for CAPL. With a stronger balance sheet and weaker economic environment, we think CAPL will use the opportunity to pick up assets at better valuations and at the same time shed non-core assets. With the group’s 160K keys under management target, S$100bn AUM ambitions for the fund management platform, redevelopment opportunities in SG and plans to deepen its presence in India and Vietnam, we see sustainable growth for CAPL.

The group will be shifting to half-yearly reporting and conducting valuations on an annual basis instead of semi-annually.

Impact of Covid19

Currently, 12 out of 48 malls in China are still closed. Residential sales were affected due to government mandated closure of showrooms due to the Covid19 situation. Showrooms have since reopened and sales momentum is picking up.

CAPL’s lodging platform of predominantly serviced residence assets and are less affected by the Covid19 than full-service hotels, due to the 70-80% corporate-driven, longer-staying clientele. Average occupancy in Singapore is c.70% while occupancy in China ranges 50%-70%. This compares to the occupancy of 10%-50% for hotels.

Footfall at SG malls fell by 50% after the DOSCON was upgraded to orange. It has since improved to -5% pre-Covid19 levels. Despite this, gross turnover for Jan20 was in line with FY19, with suburban malls experiencing better footfall and sales.

Maintain BUY with unchanged TP of S$4.20.

We remain positive on CAPL and maintain our BUY with an unchanged target price of S$4.20. Our target price translates to a FY20e P/NAV ratio of 0.75x and an total return of 22.1%.

Source: Phillip Capital Research - 4 Mar 2020