CapitaLand Investment
Maybank Securities ‘hold’ $3.65 OCBC Investment Research ‘hold’ $4.25 DBS Group Research ‘buy’ $4.25
China’s reopening a boost for CapitaLand Investment
Analysts are neutral on CapitaLand Investment (CLI) following its latest results from FY2022 ended Dec 31, 2022. The results saw earnings of $861 million, down 36.2% y-o-y, on lower divestment gains and lower fair value gains from the revaluation of its investment properties. Revenue was 25% higher y-o-y at $2.88 billion, boosted by higher contributions from fee income-related business (FRE) and real estate investment business (REIB).
As of the end of 2022, CLI’s funds under management (FUM) stood at $88 billion.
CLI plans to pay 12 cents per share and a special dividend-in-specie of 0.057 CapitaLand Ascott Trust (CLAS) units valued at 5.9 cents per share, bringing the total dividend to 17.9 cents.
With that, Maybank Securities has downgraded its call on CLI to “hold” from “buy” with a lower target price of $3.65 from $4.30. “While we like CLI’s restructuring story and the execution so far, at current valuations, risk-reward is more balanced and hence the downgrade from ‘buy’,” says analyst Krishna Guha, who is upbeat on the group’s steady fee business and growing lodging business.
CLI divested $3.1 billion of assets, meeting its annual target, at a 12% premium to book, or about 89% of divested assets are retained as FUM. Gearing is 0.52 times (de-consolidated 0.4 times). “Capital recycling will be challenging and may pick up in 2H2023. This is reflected in our FY2023 patmi forecast, which is 38% below consensus due to lower portfolio and revaluation gains assumption,” adds Guha.
Management’s focus is more on seeding opportunistic funds in the current environment. With FUM and room key count close to stated targets, Guha believes that focus will likely shift to quality of growth, improving profitability and better disclosures, especially for lodging.
As for OCBC Investment Research, the research team keeps its “hold” recommendation and $4.25 fair value estimate on CLI as it has “emerged as a more nimble and resilient entity following its strategic restructuring, and we believe it would operate with a more asset-light business model with a strong focus on recurring income streams.”
They are also positive about the group’s lodging management business which was impacted by the pandemic but is now seeing a more meaningful recovery.
On the outlook, the research team believes that China’s reopening can drive CLI’s recovery efforts, while FRE growth is set to accelerate from hereon. The group is also stepping up its recycling efforts, with about $10 billion of pipeline assets to divest and half of it potentially in China.
DBS Group Research, meanwhile, has maintained its “buy” recommendation but dropped the target price of $4.25 from $4.30. Analysts Derek Tan and Rachel Tan are positive on the group’s FY2022 core patmi and expect brighter prospects for FY2023. “We see upside from the stock largely coming from earnings CAGR of 8% (8% upside) and P/E multiple re-rating towards 18 times (peer average) for its fund’s management business (7% upside),” say the analysts.
They see China reopening as a boost for the group’s malls and operations, with close to 36% exposure there. Additionally, the pent-up travel demand from travellers is expected to boost the operational performance of Ascott.
“On top of a robust growth in operational footprint to 160,000 units by end 2023, we see a turnaround in cashflows from FY2023 onwards,” said the analysts, who view the resumption of FUM growth as a re-rating driver.
”After a quiet 2022 with the market and interest rate volatility, the calmer markets and improving investor sentiment towards redeployment into Asia’s real estate markets present opportunities for CLI to tap,” they add. Higher FUM growth from $88 billion (as of Dec 31, 2022) to its target of $100 billion through either M&A, REIT acquisitions or launch of new funds will be key drivers to enhance its recurring income and is a catalyst to the stock price. —