SINGAPORE (May 3): OCBC Investment Research is maintaining its “buy” call on CapitaLand even though 1Q19 results missed OCBC and the street’s expectations.
In 1Q19, CapitaLand handed over 328 residential units in China with a total value of RMB1.2 billion ($243 million), down 37.6% y-o-y.
Looking ahead, 60% of the 7,800 units sold previously worth RMB17.2 billion are expected to be recognised from 2Q-4Q19.
“This would imply a backend-loaded year for its Chinese residential operations,” says analyst Andy Wong in a recent report.
Management also noted selective policy easing in the cities it operates in where price caps for projects were allowed to be lifted by 2%-4% per quarter.
Key demand drivers include the influx of talent into tier-1 and 2 cities, resulting in the need for more homes.
However, Wong says policy changes remain as a major risk, as the government recently reiterated that “houses are used for living, not for speculation”.
In Vietnam, another of CapitaLand’s core market, management highlighted its launch schedule will come in slower than originally anticipated due to a change in the regulatory environment that has led to longer approval timelines for projects.
Still, fundamentals in the market remain robust and 31% of the $732 million of residential units sold previously are expected to be recognised from 2Q-4Q19.
“We believe CapitaLand will also increase its focus on its funds management platform and continue its capital recycling activities to spur higher ROE for its shareholders,” says Wong.
In 1Q19, $485.6 million of divestments were made, versus $764.7 million of investments.
“After factoring in our revised fair value changes for the CapitaLand REITs under our coverage and market prices of CapitaLand’s listed entities, we derive a higher fair value estimate of $4.04 from $3.98 previously,” says Wong.
As at 3.23pm, shares in CapitaLand are trading 6 cents higher at $3.60.
