China to be CapitaLand’s saviour?

CapitaLand posted a PATMI of $42.9m in 1Q09, down sharply by 83% yoy, 42% qoq. It was off the mark from full-year consensus estimate of $479.4m. While 1Q08 PATMI was boosted by divestment and forex gains, core earnings still fell by 65.5% yoy. Its topline also showed a 23% yoy-decline. No writedowns of its landbank has been made this quarter. Income from property sales slower than expected.

EBIT from the Singapore residential SBU fell by 50% yoy to $20.0m, with the rate of profit recognition from sold projects being slower than expected, and hardly any new units sold in the first quarter. For the rest of FY09, income will be predominantly contributed by The Seafront on Meyer and The Orchard Residences.

CapitaLand Financial is the only SBU to improve yoy, as its EBIT increased by 58% to $29.2m. The Ascott Group’s core EBIT declined by 27% due to the poor economic climate. Its China SBU plunged by 67% yoy in the absence of fair value and divestment gains, but core earnings remained relatively flat. In fact, CapitaLand China managed to sell a total 460 units in 1Q09, including about 60% of 546 newly launched units sold.

The ability to sell 460 residential units in China in 1Q09 could signify that the property market there is picking up. With the Singapore property market likely to remain lackluster for the rest of the year, CapitaLand may double its efforts to drive its sales there. With the proceeds raised from the recent rights issue, CapitaLand is in the position to capitalize on the current market condition to replenish its landbank in China.

Adjusting to a conservative launch schedule and some ASP assumptions, we have slashed our FY09 and FY10 forecasts by 44% and 38% respectively. We still like the management’s business acumen, and the current downturn could provide CapitaLand with lots of opportunities for growth in the next cycle. Maintain BUY, with a target price of $2.93, pegged at a 10%-discount to RNAV.

Sponsored Links

Related Posts by Categories