SINGAPORE (May 27): DBS Group Research believes CapitaLand’s (CAPL) merger with Ascendas-Singbridge (ASB) will herald a new era of growth for the property group.
See: CapitaLand and Ascendas-Singbridge in $11 bil deal to create Asia’s largest diversified real estate group
DBS sees the combined entity emerging stronger financially and with an operational scale that puts it among the largest real estate managers globally.
“Our RNAV is revised upwards to $5.42, accounting for ASB numbers and our target price is raised to $4.00 on the back of a similar 25% discount to RNAV. Buy,” says lead analyst Derek Tan in a Monday report.
DBS forecasts CAPL-ASB to be able to deliver a return on equity (ROE) of between 8.9% and 9.4% over FY19-FY21F.
This will be driven by an efficient mix of higher proportion of recurring income derived from ASB’s higher-yielding properties, projected continued asset revaluations on the back of higher operating incomes, and projected gains on $3 billion of planned asset divestments annually.
Indeed, CAPL has been active in achieving those targets with $1.3 billion worth of assets divested to date, with the momentum expected to continue in 2H19 and in the following years.
“We believe that its managed REITs, which are trading at an average implied yield of 4.9%, are poised to deliver accretive acquisitions,” says Tan.
“We believe that properties in the business parks, commercial properties (UK/Japan) coupled with potential listings of their US office and multi-family portfolios will be strategic moves that enhance ROE in the coming years,” adds Tan.
As at 12.29pm, shares in CapitaLand are trading at $3.28, up 21 cents YTD.
