CapitaLand

Kim Eng on 15 Feb 2012

Another billion-dollar year. CapitaLand reported a FY11 PATMI of $1.06b, 25.8% lower than the previous year. PATMI excluding revaluations would have been $573.5m, largely in line with our expectations. Looking beyond the earnings volatility, the group has demonstrated that its capital recycling model still works. Management is proposing a higher-than-expected total dividend of 8 cents per share, which is a small but pleasant surprise. Maintain Buy.

Monetising asset gains. Other than the revaluation gains, CapitaLand also enjoyed net portfolio gains of $222m in FY11, mainly from the divestment of a residential site in Shanghai, New Minzhong Leyuan Mall, Ascott Beijing and Corporation Place, among others. We see this as a positive sign that the group’s capital recycling model is still very much at work, enabling it to redeploy capital into new investments such as the Chongqing Chaotianmen acquisition.

Still positive on China. In FY11, CapitaLand sold ~1,500 homes in China. Looking ahead, management remains positive on the Chinese market in the long term as urbanisation and strong domestic consumption will continue to underpin demand. CapitaLand will continue to explore opportunities to acquire new sites. As of December last year, its China residential business accounted for only 14.4% of total group assets.

New launches in Singapore imminent. Management believes that a significant price correction in the Singapore residential market is not likely, as interest rates remain low. CapitaLand plans to roll out new phases at The Interlace and d’Leedon, and is also targeting to launch the 509-unit Sky Habitat in Bishan in 2Q12. We think that the timing of its launch is critical, given that the downside risk to ASPs is increasing.

The beauty of diversification. CapitaLand’s diversified business model is likely to see it through the uncertain year ahead. With its cash position of $6.3b and low net gearing of 0.3x, it is well-positioned to pick up attractively-priced assets. We have increased our target price to $3.96, pegged at a 20% discount to RNAV, which incorporates our new valuation for subsidiary CMA. Maintain Buy.