Analysts reiterate 'buy' call on CapitaLand after mall divestment

CapitaLand's divestment of 20 malls in China, which is expected to yield a net gain of $75 million, came as part of a decision to shift its focus to first-tier and second-tier Chinese cities.
CapitaLand's divestment of 20 malls in China, which is expected to yield a net gain of $75 million, came as part of a decision to shift its focus to first-tier and second-tier Chinese cities.PHOTO: CAPITALAND

Developer CapitaLand's announcement last week that it will divest 20 malls in China has cheered market watchers.

RHB Research Institute Singapore upgraded the stock to a "buy" call, from its previous "neutral" stance, in a note yesterday.

CIMB analyst Lock Mun Yee and OCBC Investment Research's Eli Lee repeated their "buy" calls in separate flash notes last Friday, after CapitaLand's announcement.

CIMB stuck to a target price of $4.25 and OCBC, to its fair-value estimate of $4.13. RHB lifted its target price from $3.90 to $4.20.

But DBS Bank was the most upbeat. Analysts Derek Tan and Rachel Tan noted that their target of $4.35 was "ahead of consensus average", which now stands at $4.24. They said this price "is achievable, given expectations that the group will deliver a robust set of results on the back of strong revaluation gains for its commercial portfolio, and locked-in sales for its residential portfolio".

They called the mall sale a "positive catalyst" and a "good opportunity" that will top up CapitaLand's coffers with capital to invest in higher-yield properties with a longer growth runway. "Strategy-wise, it appears that the group has chosen to stay out of the current euphoria in the Singapore residential market and focus on investing in its core competencies and recycling its portfolio assets," the team added.

RHB analyst Vijay Natarajan echoed this view: "One of CapitaLand's concerns has been its limited Singapore residential inventory... with the market at the cusp of a potential recovery.

"While we note that its land bank is running low, we believe its prudent approach makes sense amid the current intense completion, which has driven up the land costs by 20 per cent to 40 per cent."

CapitaLand's divestment, which is expected to yield a net gain of $75 million, came as part of a decision to shift its focus to first-tier and second-tier cities in China.

CIMB's Ms Lock noted: "Not only would the reconstituted portfolio offer stronger clustering effect, the sharper geographic focus would enable better resource allocation and... enhance its capacity to capture growth opportunities in China."

CapitaLand shares closed up seven cents or 1.92 per cent at $3.72 yesterday.

A version of this article appeared in the print edition of The Straits Times on January 09, 2018, with the headline 'Analysts reiterate 'buy' call on CapitaLand after mall divestment'. Print Edition | Subscribe