CapitaLand Investment started at Outperform by Daiwa

CLI’s portfolio of assets include new economy assets in its core markets of Singapore, China and India, such as Grade A office developments Capital Tower and 79 Robinson Road (pictured). Credit: CapitaLandCLI’s portfolio of assets include new economy assets in its core markets of Singapore, China and India, such as Grade A office developments Capital Tower and 79 Robinson Road (pictured). Credit: CapitaLand

Daiwa started coverage of CapitaLand Investment at Outperform with a S$3.77 target price, saying the Asia-focused real estate investment manager (REIM) was “stepping into the big leagues” after being spun off from the now-delisted CapitaLand development business.

“With the former CapitaLand development business separated and fully privatised, CLI is a cleaner (fewer consolidated entities), more sharply focused REIM, with management fully committed to creating value through its core businesses and delivering returns above its cost of capital,” Daiwa said in a note Monday.

But Daiwa noted CapitaLand Investment (CLI) is trading at a discount to REIM peers, likely as it “asset heavy” due to sizable equity-investment holdings via the listed and unlisted funds it manages, which make up S$13.9 billion, or around 50 percent of its assets as of end-September.

“These investments for now are low-return with modest yields,” the note said.

“Furthermore, CLI’s core businesses (investment management, lodging management and active recycling of real estate investments), though extensive, are probably not operating or have not scaled up to their full potential in terms of growth, revenue and/or cost efficiency,” the note said.

REIM peers trade at median price-to-book ratios (PBR) of 3.4 times, price-to-earnings ratios (PER) of 29.2 times and return on equity (ROE) of 15.5 percent, Daiwa noted, citing Bloomberg data. Dawia estimated CLI’s PBR at 1.0 times for 2022, with PER at 12.7 times and ROE at 8.4 percent.

The note said it would be “too optimistic” to expect CLI to trade in line with most REIMs.

“However, since the market is always forward-looking, any major announcement or upgrade of the FUM [funds under management] (and lodging management) outlook would likely be a positive share-price catalyst,” Daiwa said.

“The other potential catalyst is a revival of the physical lodging business from the Covid-19 trough,” Daiwa said, noting it hasn’t included any cyclical growth in the segment into its models, but added the industry could post a stronger-than-expected recovery.

Shares of CapitaLand Investment were up 0.59 percent at S$3.41 at 1:23 p.m. SGT.