CapitaLand - 1Q09 results: In keeping with the narrative, no surprises

1Q09 results weak but expected: CapitaLand’s 1Q09 PATMI of S$42.9 million was above our expectations (and little below consensus) but there was little in the quarterly results announcement that showed deviation from recently flagged trends. Lower revenues (-23% Y/Y) were mainly due to lower development project sales and reduced rental income, whilst headline PATMI fell 83% Y/Y as divestment gains recorded in 1Q08 were not repeated.

Group cash balances at end 1Q09 were S$5.5billion: The group reported net debt to equity ratio of 0.32x as at end Mar-09, and total corporate treasury liquidity of S$7.1 billion (S$4.0 billion in treasurycash balances, S$877 million of short-term debt facilities and the balance in the untapped portion of a Medium Term Note Programme).

China residential development sales momentum picking up towards the end of 1Q09, and this should flow through into 2Q09: Residential development sales in China (in Foshan and Chengdu) have picked up momentum particularly in Mar-09, and this positive pick-up should underpin an improvement in the group’s China revenues.

2Q09 valuations should be the next marker. The group undertakes semi-annual valuations of its investment properties, and 2Q09 results (announced likely in July or early August 09) are likely to be an important marker on the asset value front. Our full year FY09 net earnings estimate includes S$248 million for the group’s share of writedowns to the investment property portfolio.

We maintain our end Dec-09 price target of S$3.30/share, based on a 30% discount to our RNAV estimate of S$4.70/share. Key risks to our rating and target price: (1) prolonged period of depressed risk appetite for Asian real estate, and (2) weaker-than-expected property demand which lowers asset valuations.

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