CapitaLand - Well-poised for new acquisitions

Upgrade to BUY at S$4.22. We continue to like CapitaLand’s (CapLand’s) enviable cash hoard of S$5.2b (post CCT’s rights take-up) and low net gearing of 0.34x. This should pave the way for NAV expansion as it looks for acquisition targets in core markets of Singapore, China and Australia. Despite its 12.9% MoM surge in share price, we believe successful landbank acquisitions could further push up its current share price. Coupled with an improving Singapore residential outlook, maiden income from Orchard Residences and The Seafront should help to mitigate possible landbank provisions for its Farrer Court and Char Yong Garden sites. CapLand trades at 1.23x P/B during the initial phases of property recovery cycles. We thus peg our new target price for the stock at a 20% premium to our new base case RNAV of S$3.52. Upgrade to BUY at S$4.22.

NAV expansion with cash hoard. Among its peers, we reckon CapLand’s substantial cash hoard puts it in pole position to grow NAV when more opportunities for landbank expansion surface in 2H09, especially in China, Singapore and Australia. Concerns over NAV erosion from landbank provisions and revaluation losses would also be effectively solved.

Lure of China. The 17.5% YoY climb in Jan – Apr 09’s sold GFA (to 176.25m sqm) in China provides a genuine indication that buying sentiments have ameliorated. With 2.9m sqm of undeveloped residential landbank remaining, we believe CapLand is well-positioned to benefit from the improved dynamics and strong real estate fundamentals within China’s lower-upper tier cities. Its retail portfolio (28 completed and 10 additional malls in FY09) should also contribute stable income in the event that residential take-up for selected projects fails to take off.

Debt obligations addressed for subsidiaries/associates. Recent successful capital raising and refinancing activities by CapLand’s subsidiaries (Australand: S$350m debt refinanced) and associates (CMT: S$1.2b rights issue, CCT: S$828.3m rights issue and S$160.0m debt refinanced) have removed the need for it to subscribe for more than its pro-rata entitlement. More importantly, this affords it excess cash for acquisition purposes.

Sponsored Links

Related Posts by Categories