(BUY, S$2.80, TP S$3.52)
Resume coverage with BUY. We believe for CapitaLand with its asset recycling business model as an integrated developer with its multi-geographical, multi-segment exposure with two additional channels of growth in Ascott and CMA. We resume coverage of CapitaLand at BUY, with a target price of S$3.52 based on 20% discount to RNAV.
Not exceptionally, 2Q11 boosted by exceptionals. CapitaLand’s 2Q11 were in line with expectations, with 2Q11 revenue at S$740m (+25.0%YoY) while net profit is at S$399m (+17.4%YoY) driven by development project contributions including The Interlace, The Wharf Residence, Urban Resort Condominium in Singapore and completed China project, Riverside Ville, as well as partly higher fee-based income (+18% YoY) to S$29.1m on growth in AUM to S$31.7bn (+20% YoY).
Net income for 2Q11 was boosted by net revaluation gains of S$228m which includes fair value gains from its various REIT vehicles and China funds. Ex-reval/impairments, PATMI grew +26.6% YoY to S$171.3m for 2Q11. However we note this figures are again boosted by including S$125m from sale of residential site in Shanghai/Blife units and sale of New Minzhong Leyuan Mall.
1H11 deployment focused in Singapore. We believe the market’s focus for CapitaLand likely revolve around its capital deployment and speed of asset turn. The OODL transaction is already bearing fruit, with S$1bn of the S$3.1bn investment realised. Post OODL acquisition, CapitaLand has actively committed c.S$5bn capital in 1H11 either direct or through its listed entities, with an evident focus on deployment in Singapore. CapitaLand is well positioned for investment opportunities in the near term especially in China if deterioriating credit conditions persist, with S$6bn cash hoard and ample debt headroom at net gearing of 0.23.
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