SINGAPORE (June 28): CapitaLand remains RHB Research’s top large-cap pick after its latest acquisition of a Chongqing site for RMB5.7 billion ($1.2 billion).
See: CapitaLand acquires 32ha mixed use development site in Chongqing for $459 mil
The 32ha prime site is a mixed-development site located in Xinpaifang, and is part of Chongqing’s Free Trade Zone.
The land parcel comprises of two greenfield sites that would yield 1,900 residential units and a shopping mall, as well as brownfield sites with an inventory of 223 residential units, along with office and retail space. The project is expected to be completed by 2022.
The total gross development value (GDV) for the site at RMB7.0-7.5 billion.
CapitaLand’s management noted the ranges of residential prices around the area at RMB18,000-20,000psm and retail transactions at RMB25,000-28,000psm.
CapitaLand intends to do a strata sale of retail and also the office units over a period of time.
In a recent report, RHB’s HK-based research team noted that with no new significant policy tightening, property sales in China and prices are expected to remain resilient in the near-term.
While there are concerns on the liquidity and rising funding costs, RHB believes this should not impact developers with healthy balance sheets but instead provides them with opportunities to do distress acquisitions.
In a Thursday report, RHB analyst Vijay Natarajan says with the expected progressive handover of 8,000 units sold in China this year and the next, he sees the move as a timely replenishment of its residential portfolio.
Accordingly, the handover of units will result in a revenue recognition of RMB15.1 billion, of which RMB10 billion or 70% was due to be recognised this year.
The acquisition would be 39% funded by cash and the rest via local debt. CapitaLand’s gearing is expected to increase marginally to 0.5 times.
Natarajan says CapitaLand’s recent share price weakness stems from macro concerns on an escalation in global trade tensions which resulted in fund outflows from equities.
Fundamentally, he expects sales and prices across its residential project in China to remain steady. He also expects it to benefit from a continuous build up in its recurring income base, with eight malls opening last year and a higher fee income.
Natarajan is calling a “buy” with higher target price of $4.25, from $4.20, pegged at a 15% discount to RHB’s revised RNAV estimate of $5.00/share.
“No changes to our earnings estimates as the overseas income can only be recognised upon completion, which we expect post 2020,” he adds.
As at 11.25am, shares in CapitaLand are up 2 cents at $3.15.
