AmFraser: Maintains ‘buy’ rating on CapitaLand

Residential sales buoyed 1QFY2010 results

Net income for CapitaLand Ltd (CapLand) was up 169% y-o-y at S$115 million (RM268.26 million) for 1QFY2010. It met 11% of our FY2010F forecast and 15% of consensus estimates. Strong residential sales in Singapore, China and Vietnam underpinned the good set of results.

Higher revenue recognition came from projects such as Latitude and The Seafront on Meyer in Singapore as well as The Vista in Ho Chi Minh City, Vietnam. Contributions from joint ventures almost doubled from residential projects such as The Orchard Residences in Singapore and Summit Residences in Ningbo, China.

Excluding listed associate, CapLand sold 802 homes in China for 1QFY2010, a 74% jump y-o-y. Phase 1 (467 units) of Beaufort in Beijing was launched in 1QFY2010 with 97% sold, a reflection of continued strength in residential purchases throughout the country despite residential prices rising 8.6% in 35 Chinese cities for 2009. CapLand intends to launch another 2,400 units out of its pipeline of 20,000 units in FY2010F.

We estimate CapLand to have sold 167 residential units in Singapore for 1QFY2010, achieving 28% sales rate of 2009 total (600 units). This accounted for S$800 million, surpassing S$674 million clocked for residential sales in Singapore for 2009. This can be explained by sales of high-end homes such as Urban Suites with an ASP of S$2,575 psf against mostly mid-tier homes such as The Interlace (ASP of S$1,050 psf) and Latitude (ASP of S$1,850 psf) sold in 2009.

Despite the Singapore Government’s measure to “cool” the property market by imposing a oneyear resale levy and 80% bank financing (previously 90%), impact seems muted. Phase 2 of The Interlace was launched in April and about 75% of 590 units have been sold to-date.

Three new projects slated for launch in FY2010F are likely to be The Nassim (former ANA Hotel at Nassim Hill), Urban Resort Condominium (URC) and proposed development at Farrer Road (former Farrer Court). Based on URA data, we observe that 64-unit URC had initial sales of five units with two units sold in January 2010 at an ASP of S$2,584 psf, in line with pricing for Urban Suites. But being a smaller development, subsequent units may have been priced at a higher premium. We maintain our ASP assumption of S$3,000 psf for URC.

With the acquisition of Overseas Orient Developments (OODL), net gearing jumped from 0.09x at end FY2009 to 0.27x as at 1QFY2010. Cash balance was thus reduced by S$2.2bil from buying OODL but remains healthy at S$5.7 billion.

We have revised upwards our RNAV estimate for CapLand by 3% to S$4.82/share, factoring in higher share prices of listed associates. Pricing it at parity, our fair value stands at S$4.82/share. Share price took a hit from China’s tightening stance towards residential sales by imposing a 50% downpayment for second home purchases.

We believe it was in the interest of the Chinese government to manage gradual price appreciation of its real estate sector rather than to prick an asset bubble causing the property market slump.

With share price trading at a 17% discount to our fair value, we maintain our BUY rating.

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