SINGAPORE (Jan 8): RHB Research is upgrading CapitaLand to “buy” with a higher target price of $4.20, from “neutral” with a target price of $3.90 previously, after the real estate giant announced it is divesting its share of interest in 20 malls in China.
Part of CapitaLand’s move to reconstitute its retail asset portfolio in China, it comes hot on the heels of its recent divestment of its stake in six retail malls in India.
See: CapitaLand divests stakes in companies holding 20 retail assets for $75 mil gain
“In our view, the move clears an overhang on market concerns over its retail assets in Tier 2 and 3 cities amidst the threat of an oversupply and rise in e-commerce,” says RHB analyst Vijay Natarajan in a report on Monday.
According to a Bloomberg report, the buyers include China Vanke Co. and its commercial property unit SCPG.
At the same time, CapitaLand has seven mall management contracts – six in China and one in Singapore – as it builds on its asset light strategy.
In addition, the group recorded the opening of eight new malls across China, Malaysia and Singapore in 2017, adding some one million square metres of new retail gross floor area.
“We expect the recurring income stream from the newly opened malls to more than offset the loss of income from recent divestments,” says Natarajan.
CIMB Research analyst Lock Mun Yee notes that post-divestment, some 92% of CapitaLand’s remaining malls in China will be located in Tier 1 and 2 cities.
“Not only would the reconstituted portfolio offer stronger clustering effect, the sharper geographic focus would enable better resource allocation and economies of scale as well as enhance its capacity to capture growth opportunities in China,” Lock says.
“More importantly, it has unlocked value from mature assets for reinvestment into new growth opportunities,” she adds. “This should continue to drive RNAV growth going forward.”
CIMB is keeping its “add” call on CapitaLand with an unchanged target price of $4.25.
As at 11.59am, shares of CapitaLand are trading at $3.72, up 7 cents or 1.9%.
According to CIMB forecasts, this implies a price-to-earnings ratio of 20.9 times, a price-to-book ratio of 0.8 times, and a dividend yield of 2.5% for FY18.
