CapitaLand

Kim Eng on 2 Aug 2012

Decent set of results. CapitaLand reported a 1H12 PATMI of SGD519.1m, up 4% YoY. Excluding fair value gains and impairments, core PATMI rose by 6% YoY to SGD286.7m. At about 45% of consensus estimate, we believe this is largely within expectations as profit recognition is expected to pick up in 2H12. Operationally, the conditions in China appear encouraging, both for the residential and retail sub-sectors. Maintain BUY.

CMA led EBIT contributions. CMA accounted for 34.8% of CapitaLand’s headline 1H12 EBIT of SGD1.1b, partly boosted by revaluation gains. Residential sales in Singapore and China each accounted for 14.2% of EBIT, due to higher profit recognition from The Interlace in Singapore, and the handover of 449 units to Chinese homebuyers in 1H12.

China prospects looking brighter. CapitaLand sold 812 units (incl. options issued) in the quarter, bringing total units sold in 1H12 to 1,067 units as buying sentiments improved. These were mainly from units at Beaufort in Beijing, The Loft in Chengdu, Dolce Vita in Guangzhou and Paragon in Shanghai. Management revealed that project ASPs even managed to edge up by ~4.9% in 2Q12 and that they will continue to time new launches and explore acquisition opportunities.

Reaffirmed confidence in Singapore’s residential market. In Singapore, CapitaLand sold 259 units in 1H12, primarily from Sky Habitat. Management remains on the lookout for acquisition opportunities in Singapore, and this was evident when CapitaLand came in a narrow second in the tender for a 1.4ha site at Tanah Merah which closed yesterday. Management also guided that it believes residential prices are likely to remain stable over the next six months.

The beauty of diversification. We still like CapitaLand’s diversified portfolio and its successful capital recycling model. Our target price is raised to SGD4.12, pegged to a 20% discount to RNAV mainly on the back of higher valuations for CCT and CMA. Maintain BUY.