CapitaLand - Ready for asset acquisition

Thursday, September 3, 2009

CapitaLand has allocated S$1bn to increase the capital base of its China, Vietnam, and Ascott businesses. This is positive and signals management’s appetite to take on risk. We believe asset acquisition could happen within 3-5 months and is a price catalyst. We think CapitaLand would remain residential-focused and would buy sites in Shanghai, Beijing, and Ho Chi Minh City.

We think CapitaLand’s issuance of S$1.2bn convertible bonds is a cost-efficient way of refinancing and securing long-term capital ahead of an acquisition. The debt maturity duration is now over 6 year from 4.4 as of December 2008. CapitaLand’s share price has lagged its Hong Kong peers by up to 20%. We thinkthere is scope for the performance gap to narrow as the company commences its capital deployment.

CapitaLand reported an H109 loss of S$114.1m due to net revaluation losses. Excluding one-offs, core Q209 PATMI was S$124m (+163% QoQ) on the back of contributions from China and Singapore residential property.

We include the non-cash revaluation losses into our model and reduce 2009E headline EPS by 60% to 5cts (from 13cts) with normalised EPS of 13cts. We increase our RNAV estimate to S$4.35 (from S$4.25) due to a 15% increase in expected launch prices for Singapore projects (in line with our residential forecast upgrade), mark-to-market listed REITs, and update our earnings forecast for Australand.

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