We believe recent PMI and interbank liquidity datapoints from China point to increasing macro uncertainties as authorities attempt to engineer a more sustainable albeit slower tempo of growth. This being so, we see heightened downside risks for CAPL’s Chinese residential sales and rental outlooks. In Singapore, increasing visibility of a QE exit scenario have moved bond yields to recent highs and a trend of rising mortgage rates would likely ensue from here, in our view. Our judgment is that while rising rates alone are unlikely to trigger dramatic residential price downside, it would likely weigh on primary sales volumes ahead. We lower our fair value estimate to S$3.77 but maintain a BUY rating as we consider CAPL shares to be likely oversold at this juncture at a 45% discount to RNAV. Note that 36% of CAPL’s value is constituted by its stake in listed CapitaMalls Asia (CMA) which has dipped only 8.2% YTD versus CAPL’s whopping 19.5% correction. Moreover, we highlight that CAPL continues to hold a strong balance sheet (S$5.4b cash, 44% net gearing) which would buttress its businesses through potential headwinds.
Chinese authorities gunning for sustainable growth
Last week, the flash Chinese PMI reading for May came in below view at 48.3 – a nine-month low and the second consecutive month of a below-50 reading (signalling contraction). Moreover, Chinese credit conditions have been tight over Jun so far with the overnight repo rate touching 11.7% last Thursday. While these datapoints point to significant discipline from Chinese authorities in curbing economic excesses, we see increasing uncertainties creeping into the macro picture as the government attempts to engineer a more sustainable albeit slower tempo of growth. This being so, we see heightened downside risks for CAPL’s Chinese residential sales and rental outlooks.
Rising mortgage rates in Singapore could weigh on sales
In Singapore, while the Fed fund rate is seen to be kept low till 2015, increasing visibility of a QE exit scenario have moved bond yields to recent highs. Going forward, we believe a trend of rising mortgage rates would likely ensue from here. From our sensitivity analysis, for a S$1m loan, an increase of 50 bps would increase monthly mortgage payment by around 7%. Our judgment is that while rising rates alone are unlikely to trigger dramatic residential price downside, it would likely weigh on primary sales volume ahead.
Maintain BUY on lower S$3.77 fair value estimate
We update our RNAV valuation model with softer cap rates and ASP assumptions and hence lower our fair value estimate to S$3.77 with a higher RNAV discount of 30% versus S$4.29 (20% RNAV disc.) previously. However, we maintain a BUYrating as we consider CAPL shares to be likely oversold at this juncture at a 45% discount to RNAV. Note that 36% of CAPL’s value is constituted by its stake in listed CapitaMalls Asia (CMA) which has dipped 8.2% YTD versus CAPL’s whopping 19.5% correction. Moreover, we highlight that CAPL continues to hold a strong balance sheet (S$5.4b cash, 44% net gearing) which would buttress its businesses through potential headwinds.
Last week, the flash Chinese PMI reading for May came in below view at 48.3 – a nine-month low and the second consecutive month of a below-50 reading (signalling contraction). Moreover, Chinese credit conditions have been tight over Jun so far with the overnight repo rate touching 11.7% last Thursday. While these datapoints point to significant discipline from Chinese authorities in curbing economic excesses, we see increasing uncertainties creeping into the macro picture as the government attempts to engineer a more sustainable albeit slower tempo of growth. This being so, we see heightened downside risks for CAPL’s Chinese residential sales and rental outlooks.
Rising mortgage rates in Singapore could weigh on sales
In Singapore, while the Fed fund rate is seen to be kept low till 2015, increasing visibility of a QE exit scenario have moved bond yields to recent highs. Going forward, we believe a trend of rising mortgage rates would likely ensue from here. From our sensitivity analysis, for a S$1m loan, an increase of 50 bps would increase monthly mortgage payment by around 7%. Our judgment is that while rising rates alone are unlikely to trigger dramatic residential price downside, it would likely weigh on primary sales volume ahead.
Maintain BUY on lower S$3.77 fair value estimate
We update our RNAV valuation model with softer cap rates and ASP assumptions and hence lower our fair value estimate to S$3.77 with a higher RNAV discount of 30% versus S$4.29 (20% RNAV disc.) previously. However, we maintain a BUYrating as we consider CAPL shares to be likely oversold at this juncture at a 45% discount to RNAV. Note that 36% of CAPL’s value is constituted by its stake in listed CapitaMalls Asia (CMA) which has dipped 8.2% YTD versus CAPL’s whopping 19.5% correction. Moreover, we highlight that CAPL continues to hold a strong balance sheet (S$5.4b cash, 44% net gearing) which would buttress its businesses through potential headwinds.
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