Better second half expected of CapitaLand on higher residential sales and ASB M&A
SINGAPORE (Aug 21): CapitaLand, South-east Asia’s largest property group, is expected to have a better 2H19 now that assets under management have expanded to $129.1 billion after the acquisition of Ascendas-Singbridge (ASB).
On Aug 12, CapitaLand reported lower profit after tax and minority interest (Patmi) for both 2Q19 and 1H19 ended June compared to a year ago, after the developer incurred a one-off transaction cost of $36 million for the ASB acquisition in 2Q19.
In addition, Patmi for 1H19 fell 5.3% to $875.4 million from a year ago while Patmi for 2Q19 fell 4.2% to $579.8 million. Meanwhile, operating Patmi for 1H19 and 2Q19 fell 14.9% and 8.4% respectively, due to lower contribution from residential projects in Singapore and China, where fewer units were handed over compared to the same period a year ago.
Operating EBIT for Singapore, Malaysia, Indonesia, Vietnam and International, was up 3.4%, thanks to contributions from newly acquired properties in the US and Germany, partly offset by lower Singapore residential and rental income.
In 2Q19, CapitaLand sold 1,807 units in 2Q19, bringing 1H19 sales to 3,025 units or RMB6.4 billion. Sell-through rate continues to be good at 93% of units launched.
In Vietnam, the group handed over $19 million worth of residential sales in 2Q19. According to a Aug 7 CGS-CIMB Research report analyst Lock Mun Yee expects 2H19 contributions to be supported by additional handover of $196 million of Vietnam residential sales even as the recently launched One Pearl Bank recorded a takeup rate of 26%.
Operating ebit from its China operations -- excluding $125.1 million of divestment gains from the sale of two commercial properties and three shopping malls -- was 25% lower y-o-y at $167.5 million due to moderated handover of RMB2.26 billion worth of residential units.
But Lock says the group is expected to settle a much larger RMB9.2 billion of residential sales in 2H19.
In an Aug 7 report, analyst David Lum of Daiwa Capital Markets said CapitaLand’s 2Q19 earnings was 11% higher than its prorated 2019 forecast which which included assumed contributions from ASB in 2H19 as overall revaluation gains were higher than its forecast, driven by operating revaluations for most of the Raffles City integrated developments in China.
However, Lum said the major takeaway from 1H19 results announcement was that although the net-debt-to-equity ratio increased to 0.73x, “there is embedded deleveraging in the coming quarters due to divestments exceeding investments”. Year to date, CapitaLand divested assets worth $3.4 billion while making gross investments of $3.3 billion, on a gross-value, 100%-ownership basis, said Lum.
Lum added that management has guided that the divestment of assets is to maintain discipline even though it is under no pressure to sell assets, and he sees “potential opportunities for investment in its core markets if the current geopolitical uncertainties begin to affect the real estate markets”.
“We tweak our FY19-21F EPS marginally post results and maintain our target price of $4.15, pegged to a 35% discount to RNAV,” says CGS-CIMB Lock who is maintaining its “add” rating. “Re-rating catalyst would come from accelerating growth across its expanded platform while downside risks include a slower macro outlook that could lead to slower recycling activities,” she adds.
Lum of Daiwa is also reiterating its “buy” rating but leaving it earnings forecasts unchanged as CapitaLand is expected to be “well within striking distance of our full-year net profit forecast”.
“We also maintain our 12-month target price of $4.10, pegged to a 20% discount to our changed NAV. Key downside risk: inability to reap tangible earnings and ROE improvements from the ASB acquisition,” says Lum.
As at 3.41pm, shares in CapitaLand are down 5 cents at $3.48.
