Potential asset recycling activities could augment CapitaLand’s return on equity (ROE), according to DBS Group Research.
This is because its managed real estate investment trusts are trading at attractive cost of capital, the brokerage notes.
“We look forward to potential asset divestments or part sale of its stakes in its stabilised Raffles City projects and Business Parks in China to CapitaLand Retail China Trust,” DBS analysts Derek Tan and Rachel Tan write in a note dated August 6.
For now, the company’s ROE has been impacted by the novel coronavirus (Covid-19) pandemic, though DBS notes that the impact is “one-off”.
The brokerage says ROEs should rebound back to 7% to 8% in 2021 to 2022.
The brokerage points out that CapitaLand’s current valuations are “attractive” at close to 10-year trough levels
It believes that most negatives are already priced in.
DBS has maintained its “buy” rating for the stock with a lower target price of $3.70 from $4.50 previously.
DBS has cut its FY20-21 earnings forecasts for CapitaLand by 33%-75% to account for business disruptions across its commercial (retail & office), residential and lodging businesses.
As at 4.03 pm, CapitaLand was up 1 cent or 0.4% at $2.77 with 5.7 million shares changed hands.
