CapitaLand - Capital-productive deals expected to drive outperformance

We have upgraded our rating to (Outperform) from (Hold) and expect the successful resumption of monetising portions of its China-mall portfolio into CRCT, possibly with other capital-productive announcements, to trigger share-price outperformance.

CapitaLand’s business is diversified across several property segments and geographic locations. With the possible exception of the China market, property markets are generally subdued compared with conditions before the global financial crisis, although the risk of a property-market collapse has been averted.

Singapore property risks are receding rapidly, and the magnitude of possible impairment charges for certain projects in CapitaLand’s landbank are also diminishing. If the property-market momentum carries strongly into 2010 (we believe this is highly uncertain), CapitaLand might take significant market share with the successful launch (or re-launch) of its mid-to-high end projects. Landbank replenishment is an issue, but this would be adequately addressed if the company were to acquire attractive sites (part of the capital-productive announcements).

We have raised our six-month target price to a 60% premium to NAV (from NAV and a target price of $$2.43 previously), one standard deviation above the average premium to NAV, on our revised NAV estimate of S$2.64.

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