CapitaLand’s Chongqing investment a positive, DBS says

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CapitaLand’s acquisition of a Chongqing project should be seen as a positive, DBS said, noting the deal will extend the income visibility of its residential pipeline, while adding another commercial cite in the Chinese city.

Last week, CapitaLand said it acquired Chongqing Zhonghua Real Estate, which owns 32-hectare prime mixed-use site in Chongqing, for 2.2 billion yuan, or around S$459 million. The agreed value of the property was 5.7 billion yuan, or around S$1.19 billion, it said in a filing to SGX.

DBS noted that “earnings should kick in fairly soon,” as part of the deal was for a handover of selected residential units in the brownfield sites included in the deal. The deal will add more than 2,100 residential units to CapitaLand’s pipeline, it noted.

The bank kept a Buy call on CapitaLand, with a S$4.35 target price.

“We continue to see value in CapitaLand as we anticipate positive earnings recognition from unrecognised revenues of S$4 billion would offer strong income visibility with ample firepower to deploy for future earnings growth,” DBS said in a note last week. “In addition, the 20 percent increase in dividend payment in fiscal 2017 and share buyback provides investors with confidence that all business units are on an uptrend.”

But the bank added that in the near term, sentiment toward the stock may remain weak, with the company still searching for a new CEO.

Lim Ming Yan, the current CEO, is expected to retire at the end of 2018.

Shares of CapitaLand ended Friday up 0.96 percent at S$3.16.

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