CapLand suffered a net loss of S$114mil for 1HFY09, a reverse from S$763mil in 1HFY08. Net losses from revaluation and impairment totaled S$285mil. It turns out better than our estimates due to booking of S$358mil revaluation gain on ION Orchard. ION Orchard is valued at S$3,800 psf. Char Yong Gardens site has also been written down by S$49mil against our estimates of S$70mil. Excluding revaluation and impairment losses, CapLand would have made S$171mil profit for 1HFY09. Due to timing of recognition for development projects, CapLand is expected to recognise substantial profit contribution from The Seafront on Meyer and The Orchard Residences in 2HFY09F.
CapLand is likely to launch two projects in 2H 2009, in our opinion. The first being 64-unit Urban Resort Condominium (URC) with its showflat situated adjoining 127-unit Latitude’s showflat along River Valley Road. Looking into latest caveats lodged of neigbouring projects, Cairnhill Crest and The Light @ Cairnhill, they were transacted at average selling price (ASP) of S$1,736 psf and S$1,642 in June and July 2009 respectively. We believe URC may be priced around S$2,100 psf, 20% premium over the above five-years old projects. The second is the proposed development of 1,000 lifestyle apartments at the former Gillman Heights Condominium site in Alexandra. CapLand has a 50% stake in the 99-LH project and a low estimated breakeven cost of S$650 psf. With keen interest surfacing in nearby Redhill vicinity, the project should command ASP of S$1,000 psf, in our opinion.
Selling of Latitude has also resumed after a one year break. It was relaunched at S$1,650 psf with an estimated 24% take-up rate. Competition is expected to be stiff with projects within River Valley vicinity such as The Cosmopolitan going for S$1,380 psf.
An estimated 5.4mil sq ft of retail space is expected to surface within 2009F - 10F in Singapore. Approximately 30% or 1.7mil sq ft of retail space will be added to Orchard Road. Recently, two newly opened malls - Orchard Central and ION Orchard have reported healthy occupancy rates of 80% and 96% respectively. ION Orchard is a joint venture between CapLand and Hong Kong’s Sun Hung Kai Properties. It was better than expected as we had previously forecast only 85% occupancy rate for ION Orchard.
Net gearing stands at 0.43x with S$4.2bil cash as of 1HFY09. We think CapLand may embark on aggressive acquisition with its focus on four key markets, China, Singapore, Vietnam and Australia. It has also guided for an acceptable gearing level of 0.5x - 0.75x, last seen in FY04. However, retail assets recycling in China is unlikely to happen soon, taking close to six years to build and stabilize malls which it had first embarked in 2005.
We are revising our forecast taking into account management guidance of 10% - 15% price increase for China residential properties. n Our revised RNAV estimate stands at S$4.65/share. Using a 20% discount to our RNAV estimate, we have obtained a fair value of S$3.72/share. Share price is currently trading at S$3.99/share, 7% above our fair value. We maintain our HOLD rating.
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