CapitaLand - More of the same (DBSVikcers)

BUY S$2.80 STI : 3,107.01

Price Target : 12-month S$ 4.34

Reason for Report : 2Q11 Results

Potential Catalyst: Deployment of capital into accretive investments

DBSV vs Consensus: Below

• Results above our estimates but in line with street, lifted

by Singapore and China residential and divestment gains

• Residential activities continue to underpin income stream

• Maintain Buy with TP of $4.34

Within market expectations, above ours. Q2 PATMI came in at $399m, up 17% yoy on a 25% rise in revenue to $740.4m. Excluding revaluations, PATMI would have been $171.3m, +27% yoy. Reported EBIT of $719.6m was 0.5% lower than a year ago but 42.4% higher on a pre-revaluation basis to $608.8m. The bulk of the earnings jump came from divestment gain of a residential site in Shanghai of $102.5m and better profits from Spore and China residential with Spore EBIT seeing a 68% jump to $74.2m on progressive recognition from The Interlace, Wharf Residence and Urban Resort. In China, it delivered 940 residential units at The Loft in Chengdu and The Riviera and Riverside Ville in Foshan in Q2, bringing total delivered in 1H to 1316 units and sold 271 units valued at $565m in Q2 (total 930 units in 1H). No interim dividend was declared.

Spore and China to generate bulk of profit. Looking ahead, underpinning profits in the near term would be residential contributions from Singapore where it will continue to sell/launch ongoing /new projects such as Urban Resort (34% of total 68 sold), The Interlace (65%

sold) and d’Leedon (23% sold) as well as target to launch a new project in Bedok. In China, the company launched 1700 units this year and plans to offer another 2500 units in 2H from new developments such as Dolce Vita in Guangzhou, Imperial Bay in Hangzhou and new units from ongoing projects like Metropolis, Riverside and Beau Residences and The Loft. The Group had committed to $5b of new investments, largely in Singapore, and recycled $595m of capital in 1H11 and expects to exceed this investment target for the full year. Its low current gearing of 0.23x will enable it to tap opportunities that may arise given the uncertain global macro outlook. It will continue to focus in core markets such as Spore, China, Australia and secondary markets in Vietnam, Msia and Europe, while Japan and India remains opportunistic.

Raise earnings but maintain TP at $4.34. We raise our net earnings (pre-exceptional) by 8% to $509m on better clarity on China residential completion schedule. Including revaluation gains, FY11 net profit would be $650m. The stock is currently trading at 0.85x P/bk NAV and 35% discount to our price target of $4.34. We believe rerating catalyst would come from ongoing deployment of its significant balance sheet capacity. Maintain Buy.