Analysts are remaining upbeat over CapitaLand Investment’s (CLI) prospects after the group announced its business update for the 1QFY2024 ended March 31.
CGS International analyst Lock Mun Yee has kept “add” on CLI as she likes the group’s strong recurring fee-income base which provides “good income visibility”. Lock also likes CLI for its asset-light fund management model.
“CLI’s 1QFY2024 revenue of $650 million was broadly in line, at 22% of our FY2024 forecast,” writes Lock.
During its results briefing, CLI’s management indicated that it expects its asset recycling and deployment momentum to pick up towards the 2HFY2024, leading Lock to believe that CLI’s fee income-related business (FRB) revenue will improve as the group’s capital recycling momentum accelerates.
On its real estate investment business (REIB), CLI’s management said that it would continue to look for opportunities to lighten its balance sheet through the divestments of its on-balance sheet assets. It will also have a near-term focus on the US and China and “seed new funds” through the recycling of assets, adds Lock.
The analyst has kept her earnings per share (EPS) estimates for FY2024 to FY2026 unchanged. Her target price of $4.30, based on a 10% discount to CLI’s revalued net asset value (RNAV) is also the same.
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PhillipCapital analyst Darren Chan has also kept his “buy” call with an unchanged target price of $3.38 for CLI. His target price represents an upside of 32.6% to CLI’s last-reported price of $2.64 as at his April 29 report. It also represents a forward P/E of 16.7 times.
“We like CLI for its robust recurring fee income stream and asset-light model,” Chan writes. “We expect the FRB to continue to improve, supported by the lodging business as more units are opened and the return of event-driven fees.”
The analyst sees CLI to focus on divestments in 2024, with stabilising interest rates supporting its strategy.
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“CLI’s current gearing is 0.53 times, improving from 0.56 times as of December 2023. The cost of debt increased 0.1% q-o-q to 4%, and we expect it to stay around this level for FY2024,” he says.
Lower TPs
The research team from OCBC Investment Research (OIR) as well as Maybank Securities analyst Krishna Guha have both kept their “buy” calls but with lower target prices.
OIR’s team’s fair value estimate has been lowered to $3.86 from $3.89 while Guha’s target price is now at $3, down from $3.15 previously.
The OIR team has also lowered its patmi forecasts by 1.1% for FY2024 and 0.8% for FY2025 after updating its fair values in CLI’s Singapore-listed REITs and property trust in its valuation model.
Guha’s lowered target price reflects a slower growth in CLI’s assets under management (AUM), which has led to lower estimates as well. However, he still likes the group’s valuations on a “reasonable” 0.9 times P/BV and yield of 4.6%.
In his April 28 report, Guha sees CLI “battling” an “uncertain macro” environment with its flat top-line as growth in FRB revenue was offset by a decline in the performance of its on-balance sheet real estate investments.
“Weak capital markets weighed on fund deployment with funds under management (FUM) unchanged from last quarter at $100 billion,” he writes. “However, private fund raising continues apace, CLI is tapping into domestic China liquidity and divestments have accelerated.”
As at 4.45pm, shares in CLI are trading 2 cents higher or 0.76% up at $2.65.
