CGS-CIMB started coverage of CapitaLand Investment at Add, with a target price of S$4.59, saying the real estate investment manager’s (REIM) target of S$100 billion in funds under management (FUM) by 2024 is “doable.”
“We think the successful transformation of CLI’s fund management business could provide further tailwinds to share price performance. As the group continues to lighten its balance sheet and accelerate the growth of its fee income business, we believe there is room for a further re-rating of the valuation of its fund management business,” CGS-CIMB said in a note Monday.
CLI currently has S$86 billion in FUM, and S$124 billion in assets under management (AUM), the brokerage said.
The REIM has two main segments: the fee income-related business (FRB), which gets income from fund management, lodging management and property management, and the real estate investment business (REIB), which gets income from directly owned properties, stakes in listed REITs and private funds, the brokerage noted.
Fee income business
CGS-CIMB said the FRB “offers high earnings visibility, underpinned by steadily growing REIT management fees, while expanding private funds’ FUM and the number of lodging units under management, with a target to reach S$100 billion FUM by 2024F, could provide the growth kicker.”
The brokerage projected FRB revenue would post a compound annual growth rate (CAGR) of 8.9 percent over 2021 to 2024, on growth in FUM and lodging management.
“Growth prospects for its fee income from REIT management come from increasing portfolio sizes through inorganic growth, including capital recycling activities into its REITs as well as capital value appreciation,” the note said. “To this end, CLI’s S$10 billion worth of on-balance sheet properties, in part or whole, could likely form the pipeline for these recycling activities in the medium term.”
The brokerage noted potential asset sales on tap could be the 50 percent stake in ION Orchard and the 45 percent stake in CapitaSpring, currently owned by CapitaLand Development. CLI owns 18 percent to 39 percent stakes in its listed REITs, the note said.
In addition, CGS-CIMB noted CLI plans to monetize its directly held assets over three to four years, implying around S$3 billion of asset recycling annually, which would help boost FUM.
A recovery in the hospitality business would also provide “a further shot in the arm,” CGS-CIMB said.
“We believe that as borders and economies reopen globally, a recovery in the hospitality industry will boost its portfolio revenue per available unit (RevPAU),” the note said. It added that CLI’s lodging platform is also expected to see the completion and operational ramp-up of 56,000 units over the next three to four years.
Shares of CapitaLand Investment were down 0.52 percent at S$3.85 at 3:27 p.m. SGT Tuesday.