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Analysts: CapitaLand Offers Upside Potential Of 40%!
Aspire, Hot Picks | 25 February 2015
By: Raymond Leung
Articles (142) Profile

Analysts' updates on CAPL as at 25/02/2015

Last week, CapitaLand (CAPL) announced that its FY2014 ended on a strong note with its stellar results for 4Q14. CAPL outperformed analysts’ targets and resulted in a surge of its share price.

4Q2014 Results
The group achieved a 67.2 percent year-on-year (YoY) growth in revenue to $1.5 billion for 4Q14. This led to a 187 percent increase in Profit After Tax and Minority Interest (PATMI) YoY to $409.3 million.

Improved operating profits, higher revaluation gains from its investment properties and lower portfolio loss were cited as the main contributors for the strong quarterly results. However, a higher impairment in losses by CAPL set the group back slightly.

FY2014 Results
Revenue for the year increased by 11.8 percent YoY to $3.92 billion, albeit at a slower rate than the previous year. CAPL’s PATMI grew by 38.2 percent YoY to $1.2 billion, a much stronger increase compared to the lower revenue growth.

The improved operating performance was mainly due to the group’s developments and a shopping mall in Vietnam, profits from the sale of Westgate Tower and lower funding costs from a low-interest environment. In addition, Singapore and China continues to be the core markets for CAPL’s revenue accounting for 76.7 percent of the group’s total revenue.

Essentially, higher fair value gains from investment properties, absence of loss from divestments and lower losses deriving from the repurchase of convertible bonds were the other main contributing factors for the stronger PATMI in FY14.

Sectors CAPL focusing on
CAPL will focus on two main sectors in FY2015 and beyond; namely the Asian Markets and Global Serviced Residences.

Singapore and China will continue to remain as the group’s core markets as they continue to expand in these countries. However, CAPL will be entering other Asian emerging markets such as Vietnam, Indonesia and Malaysia.

Serviced residences are a good proxy to leverage on global investment opportunities for CAPL. The group’s serviced residences wing, Ascott Limited will continue to benefit the group through its strong network because of the addition of new real estates. It is also an efficient way to diversify as investments in global gateway cities will enable CAPL to ride the positive sentiments for real estates in the various markets.

Potential Upsides
Higher revaluation gains and rental reversions can be expected from CAPL as only 68 percent of its investment properties are matured. The balance might bring an upside to the group as rental increases and prices move closer toward its potential value.

Source: Properties Maturity Breakdown, CAPL

Stronger contributions from new malls can be expected as 19 malls are expected to be opened in the next three years. Furthermore, value of the strong pipeline of malls can be realized if CAPL sells the properties to its REIT, CapitaMall Trust.

Source: Mall Pipeline, CAPL

Analysts’ Thoughts
Even though CAPL has outperformed the STI by 6 percent year-to-date (as at 17 Feb), analysts from Macquarie Research felt that there is still room for growth as prices remain cheap. It is trading at 0.93 times of the 2014 price-to-book and could offer over 20 percent returns for the next two years.

In addition, CAPL is giving out $0.09 (1:3 payout ratio) in dividend payouts for FY14. Considering the various factors, analysts from Macquarie Research remain optimistic about CAPL and reiterated their “Buy” call with a higher price target. According to the research house, CAPL has a potential upside of 41.16 percent.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.


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