CAPL reported a 2Q09 net loss of S$157 mn, its first headline quarterly loss since 4Q03, with the bottom line weighed down by net exceptional losses of S$281 mn. Core net profit came in at S$124 mn (+163% qoq), above our 2Q09 estimate of S$92 mn, as China residential led growth. For the quarter, key positives include: 1) strong China residential, 1,163 units sold in 1H09 (780 units in 2008), 2Q EBIT up 4X qoq; 2) soft opening of ION Orchard in July, 96% mall occupancy and higher-than-expected revaluation, S$3,800 psf; 3) deleveraged B/S post-rights issue in 1Q09; gearing at 0.43X. Key negatives include: 1) Singapore office portfolio marred by downward asset revaluations, and 2) AustraLand’s operations remain challenging, 1H09 operating profit ex. revaluations fell 11% hoh. CAPL also announced a S$1.1 bn convertible bond issue, coupon 2.375% and YTM of 2.875%, with a conversion premium 20%-25% above the prevailing share price. If converted, this would account for around 5% of the current share base.
We believe the focus should be on stabilizing core operations and the FY2010 outlook. While 1H09 core profits constitute 41% of FY09 estimate, we think profit recognition from SG resi will be more meaningful in 2H09. In Singapore, up to 1,165 units will be launch-ready by 2H09 from Gillman Heights and Char Yong Gardens. In China, the group is committed to an additional capital injection of S$500 mn (a 25% increase) in the short term. On the bond issue, this would mark CAPL’s fourth successful bond issue; while seen as strengthening its long-term financing and debt maturity, the narrow premium and potential dilution may be a near-term overhang on CAPL. Maintain Buy (Conviction List) and RNAV-based 12m TP of S$3.90.
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