CapitaLand Limited - Expect a strong launch at Bedok Residences (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$2.54

Fair Value: S$2.92

Sales to start this week - pricing above expectations. Preview sales for CapitaLand's (CAPL) Bedok Residences would begin this Wed, 23 Nov 2011, and the 583-unit condominium development is priced indicatively at S$1,200 to S$1,400 psf which is somewhat above our expectations. We understand that the launch was originally planned for a balloting system but was switched to a physical queue (first come first serve - one buyer one queue) on Sunday evening. In our view, CAPL likely wanted to get a more concrete sense of buyer response in view of macro-economic uncertainties and a competing launch at Bedok Reservoir by UOL, priced tentatively at S$1,100 psf based on market talk.

Expect a strong launch performance. We visited the show flat area yesterday afternoon, some twelve hours after the announcement of a physical queue system, and found ~500 people already in the line for preview sales. All five groups in the line that we spoke to were hired by agents to wait in the place of buyers. After enquiring with three agents, however, we found they would only hire a replacement to wait in line if we were committed to buy and submitted cheques. From these data-points, we judge that there is robust demand for the launch and expect a strong sales performance in terms of both units sold and average selling prices later this week.

Market likely to react positively. We believe the market would react positively to a strong sales performance as it is likely, at this juncture, not fully priced into the share price, which has faced recent headwinds from increasing macro worries and inflection points in Chinese property prices. Maintain BUY at an unchanged S$2.92 fair value estimate (20 % discount to RNAV).

More details of site. The Bedok Residences project is a JV between CAPL and its 65.5% subsidiary, CapitaMalls Asia, which gives CAPL an 82.75% effective stake. The site was bought for S$788.9m in Sep 2010, and has a site area of 268,047 sq ft with a lease term of 99 years (plot ratio 3.5). The development is located at the junction of New Upper Changi Road/Bedok North Drive next to the Bedok MRT station, and is designed to be an integrated project with a condominium above a one-stop shopping mall and a bus interchange. For the residential component alone, assuming construction cost at S$300 psf , we estimate the breakeven to be ~S$900 psf, returning a 31% gross profit margin at S$1,300 psf ASP.