CapitaLand

Kim Eng on 2 May 2012

Yearly improvement at core level. CapitaLand posted a 1Q12 PATMI of SGD133.2m (+31% YoY; -72% QoQ). Excluding revaluation gains, core PATMI of SGD107.2m would have been a 7% YoY improvement, largely in line with expectations given the seasonally weak first quarter. With policy loosening seen in some Tier-2/3 cities in China, we expect some re-rating for CapitaLand along with better-positioned Chinese developers. Maintain BUY.

Lower residential profits recognized... CapitaLand Residential Singapore (CRS) and CapitaLand China Holdings (CCH) posted EBIT declines of 11.4% and 35.9% respectively. This is a timing issue, given that CCH only delivered 180 homes in China in 1Q12, mainly from Beau Residences in Foshan. CCH is expected to deliver more units from Beau Residences and The Loft in Chengdu later in the year.

… but recent new sales were encouraging. On the other hand, the Group’s recent new sales were encouraging, as it managed to sell 189 homes in the quarter worth RMB353m. In Singapore, CapitaLand has sold 129 units of Sky Habitat in Bishan, setting a new benchmark for suburban homes prices at an estimated ASP of SGD1,700 psf.

Signs of thaw in China. Some Tier 2/3 cities in China have recently undergone selective policy loosening mainly aimed at stimulating enduser demand, particularly from first-time home buyers. Our Hong Kong analyst, Ivan Cheung, believes that such loosening will go some way to help developers maintain strong contracted sales momentum into mid- 2012, which should be positive for the sector as a whole. In general, sales could recover strongly in May, which is traditionally the peak season. CapitaLand could potentially benefit along with the possible rerating of the better capitalised Chinese developers.

Undemanding valuations. We raise our target price slightly to SGD4.00, pegged at a 20% discount to RNAV, mainly as a result of our higher RNAV for CapitaMalls Asia. CapitaLand is currently trading at undemanding valuations of 0.84x P/NAV and 0.58x P/RNAV. BUY.