CIMB
What Happened
Last week, we toured CapLand’s
projects in Shanghai and parts of
south China (Guangzhou and
Shenzhen), and also interacted with
senior management and ground staff.
What We Think
We think CapLand is gradually
carving out a competitive advantage
over the local developers in
large-scale commercial and mixed
developments. Though not all will
bear fruit in the near term, we believe
the stage is set for more asset
recycling once many of its Raffles City
(RC) mixed projects are completed in
2015-17. Meanwhile, we see
improvements at the operational and
project levels.
In Shanghai, retail mall
footfall remains robust, with a
distinct improvement in traffic at
Hongkou Plaza (CMA) since our last
visit in 2012. This asset will enter its
first renewal cycle in 2014 and management is confident of getting
15-20% rental reversions, like the
group’s other malls.
We think this is
achievable. The feel is more mixed on
China’s residential segment (12% of
its GAV). The high-end segment
remains weak due to the home
purchase restrictions (HPR) but
mid-end projects continue to sell well.
Dolce Vita, a mid-range product in
Guangzhou sold over 86% of its
launched units at Rmb15k-20k psm.
CapLand’s ground staff told us that
property remains the most
sought-after investment asset class in
China. Interestingly, we noticed more
of CapLand’s commercial projects
being carved out for strata sales, a
segment not affected by HPR. CEO
Mr Lim Ming Yan’s style of
management is to go bottom-up and
improve yields and IRR at the project
level. He expects development sales
to be the ROE kicker, while
maintaining a target 34% of its assets
for development growth. Overall, we
think CapLand is progressing well in
achieving its ROE target of 8-12%.
What You Should Do
CapLand remains one of our key picks
in the sector at 0.8x P/BV.
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