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Citi Research: CapitaLand and Wilmar Good Buys in Bearish Times
Aspire, Hot Picks | 30 March 2015
By: Elaine Lee
Articles (11) Profile

In a recent research analysis by Citi Research, it was stated that the current overall sentiments of the market, specifically in property and commodities are appearing to be bearish.

However, Citi projected fairly good target prices for two stocks, CapitaLand and Wilmar. Citi Research picked CapitaLand for its favourable investment portfolio size, while Wilmar was noted for its large influence on Asian demand and being a proxy for Asia’s food needs.

Flattish Revenue ‘Best-Case Scenario’ For CapitaLand

In an environment where interest rates are probably going to increase, the Singapore Real Estate Investment Trust (S-REIT) segment will essentially be put under negative pressure. Citi Research believes that the Singapore residential property sector will remain bearish for some time to come.

Despite the overall bearish sentiments, CapitaLand was handed 8,000 residential units in China with a GDV (Gross Development Value) of RMB9.3 billion in 2014. Though only half of the total units were pre sold, the development is expected to complete in 2015.

In comparison to the same period in 2013, CapitaLand’s 4Q14 operating PATMI (Profit After Tax and Minority Interest) results surged 54 percent to $284 million. The one-off “sale of Westgate Tower, contributions from malls, serviced residences, Singapore residential and lower finance costs” were the main driving factors of the growth.

Excluding revenue from the sale of Westgate Tower and considering impairment losses, CapitaLand’s FY14 operating PATMI was $705 million, a 40 percent growth despite lower inputs from China residential and impairment charges.

As cited by Citi, a “flattish YoY (Year-on-Year) revenue from China residential will be the best-case scenario for 2015.” Amongst the China-exposed property firms, Citi Research favours CapitaLand’s “sizable investment portfolio” that “hedges the weak residential market.”

Additionally, CapitaLand’s management had also identified Vietnam, Indonesia and Malaysia as “potential growth markets for the group.” As such, Citi Research maintains its positive outlook for CapitaLand, their target price is $3.86.

Wilmar International Resilient Against Soft Commodity Outlook

 

China’s slowing growth trend appears to have weakened commodity demands globally. Coupled with an appreciating US Dollar, a downward trend in commodity prices is inevitable. Nevertheless, low prices are stimulating global growth and the soft commodity outlook could be beneficial for keeping inflation low and support consumer demand.

Known as a proxy for Asia’s food needs and the largest biodiesel producer in Indonesia, Wilmar International appears to be resilient against the somewhat lackluster year for commodities.

In the short term, Wilmar is expecting low commodity prices to affect upstream segments. However, feedstock costs are expected to decrease and might boost the “trend of stable volume growth and margin expansion in downstream business.”

Wilmar has had to face challenges against weaker crude palm oil prices and lower palm refining margins due to overcapacity. This can be seen through the declining margin trend in Palm & Laurics where its business remained difficult and competitive.

In addition, there has been a somewhat volatile recovery in oilseeds processing margins in China. Soybean crushing margins and import is expected to stabilize after banks tighten financing for traders, which means less market disruption.

Though not bullish on palm oil, analysts are positive that Wilmar’s sustainable earnings stability will gain investor’s confidence. Citi Research projected a target price of $3.91 to Wilmar’s share with 2015 P/E at 11.5 times.

Elaine Lee is a staff writer for Aspire. She is currently pursuing a degree in Economics and Maths with the University of London.

Please click here for more information about this author.


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