Analysts are keeping rather neutral on CapitaLand Investment (CLI) 9CI , following its latest FY2022 ended Dec 31, 2022, results.
The results saw earnings of $861 million, down 36.2% y-o-y, due to lower divestment gains and lower fair value gains from revaluation of its investment properties. Revenue was 25% higher y-o-y at $2.88 billion, boosted by higher contribution from fee income-related business (FRE) and real estate investment business (REIB).
As at end-2022, CLI’s funds under management, or funds under management (FUM), stood at $88 billion, driven by the acquisition-led growth of CLI’s listed funds and the launch of eight new private funds during the year, including the newly launched CapitaLand China Data Centre Partners and CapitaLand China Opportunistic Partners Programme, bringing CLI’s embedded FUM to $96 billion, within striking distance of its $100 billion target by 2024.
CLI plans to pay a dividend of 12 cents per share and a special dividend-in-specie of 0.057 CapitaLand Ascott Trust (CLAS) units per share valued at 5.9 Singapore cents per share for FY 2022, bringing the total dividend to 17.9 Singapore cents.
With that Maybank Securities has downgraded its call on CLI to “hold” from “buy” with a lower target price of $3.65 from $4.30 previously. Analyst Krishna Guha also takes over the coverage of this stock from Chua Su Tye.
The reason for the downgrade and lower target price is due to the group’s lowering of listed funds market cap and applying Hold Co. discount in the research house’s sum-of-parts valuation.
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“While we like CLI’s restructuring story and the execution so far, at current valuations, risk-reward is more balanced and hence the downgrade from ‘buy’,” says Guha, who is upbeat on the group’s steady fee business and growing lodging business.
CLI divested $3.1 billion of assets, meeting its annual target, at a 12% premium to book. About 89% of divested assets retained as funds under management (FUM). Gearing is 0.52x (deconsolidated 0.4x). “Capital recycling will be challenging and may pick up in 2H2023. This is reflected in our FY2023 patmi forecast which is 38% below consensus due to lower portfolio and reval gains assumption,” says Guha.
Management’s focus is more on seeding opportunistic funds in current environment. With FUM and room key count close to stated targets, Guha believes that focus is likely to shift to quality of growth, improving profitability and better disclosures especially for lodging.
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As for OCBC Investment Research, the research team has similar sentiments as it is keeping its “hold” recommendation and $4.25 fair value estimate on CLI. “CLI has emerged as a more nimble and resilient entity following its strategic restructuring, and we believe it would operate with a more asset-light business model with strong focus on recurring income streams,” says the research team.
Meanwhile, they are also positive on the group’s lodging management business that was adversely impacted by the pandemic, but have since started to see a more meaningful recovery. CLI’s focus is on management and franchise contracts.
On the outlook, the research team believes that China’s faster-than-expected reopening is expected to drive CLI’s recovery efforts, while the group’s fee income growth (one of its key driver of operating patmi growth) is set to accelerate from here. On the other hand, the group is also stepping up its recycling efforts, with about $10 billion of pipeline assets to potentially divest and half of it located in China.
DBS Group Research is more bullish on CLI as it has maintained its “buy” recommendation but slightly dropped target price of $4.25 from $4.30 previously.
Analysts Derek Tan and Rachel Tan are positive on the group’s FY2022 core patmi and expects brighter prospects for FY2023. “We see upside from the stock largely coming from earnings cagr of 8% (8% upside) and P/E multiple re-rating towards 18x (peer average) for its funds management business (7% upside),” says the analysts.
Meanwhile they see China reopening as a boost for the group malls and operations there, with a close to about 36% exposure there. In addition, the pent-up travel demand from travellers (especially China) is expected to boost the operational performance of Ascott Limited, where its global footprint is well placed to leverage on the multi-year recovery of the hospitality sector.
“On top of a robust growth in operational footprint to 160,000 units by end 2023, we see a turnaround in cash-flows from FY2023 onwards,” says the analysts, who views the resumption of FUM growth a re-rating driver.
”After a quiet 2022 with market and interest rate volatility, the calmer markets and improving investor sentiment towards redeployment into Asia’s real estate markets presents opportunities for CLI to tap,” says the analysts. Higher FUM growth from $88 billion (as of Dec 31, 2022) to its target of $100 billion through either M&A, REIT acquisitions or launch of new funds will be key drivers to enhance its recurring income and is a catalyst to the stock price, according to the analysts.
As at 11.15am, shares in CLI are trading 1.35% higher at $3.75.
