It has stakes in five listed REITs and 17 private equity real estate fund with AUM over S$25bil. Despite recent run up in market we opine it may still not be opportune to recycle capital with surpressed asset values and time needed to stabilise assets before divestment through REITs.
CapLand may face risk of landbank writedown with the tepid high-end residential market in our opinion. Char Yong Gardens was purchased in June 2007 at S$1,788 psf ppr, a whopping 62% premium over neighbouring Urban R.C. CapLand may want to make provisions as such. Our estimates are for CapLand to take a S$70mil haircut in FY09F based on 30% write-down in the 50:50 joint venture.
Our forecast are for earnings to decline 42% to S$726mil in FY09F and reverse with a 13% increase to S$818mil in FY10F. Sharp drop in FY09F earnings is due to absence of gains from disposal as we perceive FY09F be much tougher to extract value from existing assets. In addition, we have also assumed 10% revaluation loss on investment properties for FY09F - 10F. Contributions from associates will partially mitigate decline.
We expect Capland to recognise progressive development profit from The Orchard Residences (77% sold) and Rihan Heights (82% sold). Commencement of rental income from ION Orchard, Wilkie Edge and Sembawang Shopping Centre will also provide further boost.
CapLand is likely to forge ahead in China with retail operations being its wild card. Rental income will get a boost from its 21 retail malls - with an estimated 5.5 million sq ft NLA currently under construction - upon completion. China’s contribution to CapLand’s FY09F earnings and RNAV are estimated at 21% and 34% respectively.
Liquidity remains ample having raised S$1.8bil via rights issue in Februaury 2009. Funding pressure further relieved on group via rights issue by units CMT and CCT. We project net gearing of 37% and 40% in FY09F - 10F. With cash buffer of S$5.5bil as of 1Q09, CapLand will actively pursue acquisition opportunities in our opinion.
Share price has doubled from low of S$1.78/share in March 2009 and trades at 12% discount to our RNAV estimates. Even though it warrants a premium by virtue of its size, valuation seems stretched at this juncture.
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