Singapore Financials 26 February 2016
CapitaLand (CAPL SP) CapitaLand
Target price: SGD3.930 Share price (25 Feb): SGD2.880 | Up/downside: +36.5%
Initiation: recurring income to back land replenishment Shane Goh (65) 6499 6546 China: earnings upside with malls/integrated development openings [email protected] Singapore: rental and offices provide recurring income David Lum, CFA (65) 6329 2102 Initiate with a Buy rating and 12-month SOTP-based TP of SGD3.93 [email protected]
Investment case: In our view, CapitaLand’s investment properties (malls, Share price performance offices, serviced residences) offer a resilient income source amid economic (SGD) (%) uncertainty and a depressed residential property market in Singapore. We 3.8 115 are positive on its forthcoming malls and integrated developments in China, 3.5 109 slated to open in 2016-18, coupled with positive rental reversions at 3.2 103 2.9 96 existing malls. We forecast a core China-led EBIT CAGR of 9% for 2015- 2.6 90 18, with the share of recurring income from investment properties seen Feb-15 May-15 Aug-15 Nov-15 Feb-16 rising to 79% for 2018, from 64% in 2015. Capitaland (LHS) Relative to FSSTI (RHS)
With most of CapitaLand’s China residential projects scheduled to be 12-month range 2.680-3.790 completed by 2019E, we expect it to replenish its landbank in 2016-17 to Market cap (USDbn) 8.74 ensure continuation of completed projects. China’s economic slowdown and 3m avg daily turnover (USDm) 30.09 Shares outstanding (m) 4,261 market volatility could create investment opportunities for strong players like Major shareholder Temasek Holdings (39.6%) CapitaLand. Land acquisitions in line with its focus on mixed developments in tier-1/upper tier-2 cities may be share-price catalysts, in our view. Financial summary (SGD) Year to 31 Dec 16E 17E 18E In Singapore, the “Asset Reconstitution” theme could be a focus in 2016, Revenue (m) 4,147 4,273 4,531 with the group’s asset sales, particularly non-core properties, continuing Operating profit (m) 1,175 1,346 1,920 Net profit (m) 884 1,012 1,140 after the sale of the Bedok Mall and PWC Building in 2015. Amid low Core EPS (fully-diluted) 0.185 0.212 0.239 transaction volume and declining prices for residential properties, we take EPS change (%) 7.4 14.5 12.6 comfort in the resilient income stream from CapitaLand’s portfolio of malls. Daiwa vs Cons. EPS (%) 24.4 8.3 2.1 PER (x) 15.5 13.6 12.1 While cognisant of the potential office oversupply in 2016-18E, we believe Dividend yield (%) 3.3 3.5 3.6 the group’s commercial assets will ride out the period, albeit at lower rents DPS 0.095 0.100 0.105 and occupancy rates. We do not expect transactional volume for the overall PBR (x) 0.7 0.6 0.6 residential market to pick up significantly until there is a relaxation of EV/EBITDA (x) 15.2 13.2 9.2 ROE (%) 4.8 5.3 5.6 property-cooling measures, which we think may happen in 2H16. Source: FactSet, Daiwa forecasts
Catalysts: We see 3 share-price catalysts: 1) the acquisition of new landbank in China, 2) disposal of assets at favourable valuations, and 3) relaxation of property cooling measures in Singapore.
Valuation: We initiate with a Buy (1) call and SOTP-based 12-month TP of SGD3.93, a 20% discount to our end-2016E RNAV of SGD4.90. We find valuations undemanding, as the stock has been trading at more than 1SD below its past-11-year mean price-to-RNAV since July 2015, a 41% discount to our RNAV estimate, which has not been seen since the GFC. Relative to the consensus, we are more positive on the outlook for the company’s Singapore residential segment and China malls.
Risks: The key risks: 1) prolonged slowdown in the global economy affecting the retail scene in Singapore and China, 2) property tightening measures in China, and 3) an uncontrolled increase in new office and retail land supply in Singapore.
See important disclosures, including any required research certifications, beginning on page 56
CapitaLand (CAPL SP): 26 February 2016
Table of contents
Landbank replenishment and asset reconstitution offer share-price catalysts ...... 6 Valuation...... 7 Investment properties to drive strong earnings ...... 9 Asset reconstitution: a key theme in Singapore for 2016 ...... 10 Stage set for a relaxation of cooling measures in 2H16...... 12 Adjustments to cooling measures expected in 2H16 ...... 18 Retail rents and occupancy to moderate as supply slows ...... 22 Pressure on office rents in the face of looming supply ...... 24 Focus on tier-1 and upper tier-2 cities in China ...... 26 What is our view of China’s physical property market? ...... 31 The Ascott Limited: on track for 80,000 units by 2020E ...... 34 What’s next for ASEAN? ...... 35 Rising interest negative … but not a deal-breaker ...... 38 Effective capital management should result in the 8% ROE target being reached by 2018E .. 40 Risks to our Buy call on the stock ...... 43 Valuation and recommendation ...... 44 Appendix 1: company profile ...... 46 Appendix 2: harnessing technology across its business units ...... 47 Appendix 3: extension/ABSD charges for Singapore-listed developers ...... 48 Appendix 4: on the ground in China (November 2015) ...... 49
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CapitaLand (CAPL SP): 26 February 2016
How do we justify our view? Growth outlook Valuation Earnings revisions
Growth outlook CapitaLand: EBIT breakdown by business units We forecast CapitaLand’s core EBIT to see a CAGR of 9% (SGD '000) 2,500 17 for 2015-18, driven by recurrent income contributions from 25 27 411 new malls and mixed developments in China. Such a 2,000 23 48 351 223 300 CAGR would help its operating ROE (excluding revaluation 183 1,500 962 gains and impairments) gain 2.1pp, hitting 5.6% for 2018E, 600 801 684 698 from 3.5% for 2014, in our view. Including revaluation 1,000 433 gains, we forecast an overall ROE of 8.7% for 2018. 309 513 467 449 500 492 482 421 480 551 While we are positive on the outlook for retail malls and 0 2014 2015 2016E 2017E 2018E mixed developments in Singapore and China’s tier-1 and CapitaLand Singapore CapitaLand China CapitaMalls Asia upper tier-2 cities, we are cognisant of the large upcoming Ascott Corporate and Others supply of office in Singapore, which could dampen rents Source: Company, Daiwa forecasts and lower occupancy. Note: Includes income from associates and JVs excludes revaluation gains and impairment
Valuation CapitaLand: price-to-SOTP We arrive at our TP of SGD3.93 by ascribing a 20% (x ) discount to our SOTP-based end-2016E RNAV of 1.6 SGD4.90. We think its valuation is undemanding, at more 1.4 than 1SD below its past-11-year mean price-to-RNAV since 1.2 July 2015, a 41% discount to our RNAV estimate. We 1.0 derive the RNAV by estimating the capital value of the 0.8 company’s retail, commercial and integrated development 0.6 portfolio, applying a PER to its fund-management 0.4
business, adding the NPV of future profits for its residential
Feb-05 Feb-07 Feb-08 Feb-09 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-06 Feb-10
Aug-04 Aug-05 Aug-07 Aug-08 Aug-09 Aug-11 Aug-12 Aug-13 Aug-15 Aug-10 Aug-14 development and valuing its REITs using Daiwa’s target Aug-06 Price-to-SOTP Mean +1 SD prices or last traded unit prices. We think a 20% discount is -1 SD Median fair as CapitaLand’s median price-to-SOTP discount has Source: Bloomberg, Daiwa forecasts been 17% since 2010.
Earnings revisions CapitaLand: Daiwa’s core EPS forecasts vs. consensus The Bloomberg consensus has lowered its 2016-17 EPS 30% forecasts for CapitaLand by 18-23% since February 2015. 25% We think concern about how Singapore’s property cooling measures would affect sales at CapitaLand’s residential 20% developments was the key reason behind the downward revisions. 15%
10% Our 2016-18E core EPS are 2-24% above consensus, likely due to our more positive outlook for the Singapore 5% residential market and on the potential earnings contribution from the opening of integrated developments 0% 2016E 2017E 2017E and shopping malls in China. Source: Bloomberg, Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
Financial summary Key assumptions Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E CL Singapore EBIT margin (%) 0.0 53.9 60.5 64.7 40.4 12.4 44.7 41.6 CL China EBIT margin (%) 0.0 75.2 43.1 64.2 32.6 38.8 44.9 49.2 CMA EBIT margin (%) 242.5 191.2 131.9 80.3 119.9 123.3 137.7 168.1 Ascott EBIT margin (%) 0.0 44.8 50.9 43.6 43.8 46.7 48.4 48.9 Overall EBIT margin (%) 69.1 61.1 64.3 62.1 48.6 52.1 58.1 72.7 Revaluations (SGDm) 534.3 450.8 447.8 620.7 407.5 288.9 354.0 615.0
Profit and loss (SGDm) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E CapitaLand Singapore 0 951 1,237 1,242 1,229 811 1,073 1,325 CapitaLand China 0 434 899 638 2,039 1,630 1,397 1,268 Other Revenue 3,020 1,916 1,375 2,046 1,493 1,706 1,803 1,938 Total Revenue 3,020 3,301 3,511 3,925 4,762 4,147 4,273 4,531 Other income 633 493 594 541 503 352 477 976 COGS (1,947) (2,073) (2,274) (2,543) (3,287) (2,842) (2,907) (3,060) SG&A (530) (580) (407) (412) (402) (416) (429) (455) Other op.expenses (46) (52) (150) (101) (29) (67) (69) (73) Operating profit 1,129 1,089 1,274 1,410 1,547 1,175 1,346 1,920 Net-interest inc./(exp.) (392) (405) (400) (382) (434) (451) (475) (478) Assoc/forex/extraord./others 877 835 903 970 726 940 1,098 1,336 Pre-tax profit 1,614 1,518 1,777 1,997 1,839 1,664 1,968 2,778 Tax (191) (202) (205) (267) (344) (195) (235) (389) Min. int./pref. div./others (366) (386) (732) (570) (430) (295) (367) (634) Net profit (reported) 1,057 930 840 1,161 1,066 1,173 1,366 1,755 Net profit (adjusted) 1,057 369 503 705 824 884 1,012 1,140 EPS (reported)(SGD) 0.248 0.219 0.197 0.273 0.250 0.275 0.321 0.412 EPS (adjusted)(SGD) 0.248 0.087 0.118 0.166 0.193 0.208 0.238 0.268 EPS (adjusted fully-diluted)(SGD) 0.248 0.087 0.118 0.149 0.173 0.185 0.212 0.239 DPS (SGD) 0.080 0.070 0.080 0.090 0.090 0.095 0.100 0.105 EBIT 1,129 1,089 1,274 1,410 1,547 1,175 1,346 1,920 EBITDA 1,168 1,134 1,323 1,473 1,611 1,248 1,419 1,993
Cash flow (SGDm) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Profit before tax 1,614 1,518 1,777 1,997 1,839 1,664 1,968 2,778 Depreciation and amortisation 39 45 49 63 65 73 73 73 Tax paid (195) (153) (223) (256) (261) (195) (235) (389) Change in working capital (1,321) (481) (54) 52 1,548 508 465 612 Other operational CF items (939) (686) (593) (857) (724) (706) (964) (1,699) Cash flow from operations (802) 244 956 999 2,467 1,344 1,307 1,375 Capex (1,024) (520) (742) (1,064) (1,001) (1,823) (948) (948) Net (acquisitions)/disposals 1,046 (1,192) 628 (560) 729 0 0 0 Other investing CF items (1,133) (174) 484 1,285 426 485 503 524 Cash flow from investing (1,110) (1,886) 370 (339) 154 (1,338) (445) (424) Change in debt 1,771 1,875 392 32 (237) 0 0 0 Net share issues/(repurchases) 3 1 2 1 5 0 0 0 Dividends paid (256) (340) (298) (341) (384) (383) (405) (426) Other financing CF items (536) (580) (965) (3,965) (597) (790) (780) (649) Cash flow from financing 982 956 (869) (4,272) (1,213) (1,173) (1,185) (1,075) Forex effect/others 5 (81) 15 29 40 0 0 0 Change in cash (926) (767) 472 (3,583) 1,447 (1,167) (323) (124) Free cash flow (1,825) (276) 214 (66) 1,465 (479) 359 427 Source: FactSet, Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
Financial summary continued … Balance sheet (SGDm) As at 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Cash & short-term investment 6,264 5,498 6,306 2,749 4,173 3,006 2,684 2,560 Inventory 6,905 7,510 7,382 7,674 6,936 6,612 6,109 5,420 Accounts receivable 1,769 1,485 1,167 963 1,424 1,241 1,278 1,355 Other current assets 195 201 284 194 92 92 92 92 Total current assets 15,134 14,694 15,140 11,580 12,627 10,951 10,164 9,428 Fixed assets 1,076 1,264 666 1,047 808 808 808 808 Goodwill & intangibles 459 462 467 463 461 461 461 461 Other non-current assets 18,651 21,368 28,790 31,023 33,157 35,546 37,290 39,618 Total assets 35,319 37,788 45,063 44,113 47,053 47,766 48,723 50,315 Short-term debt 860 782 1,280 3,469 2,246 2,246 2,246 2,246 Accounts payable 2,270 2,360 2,889 3,070 4,063 4,063 4,063 4,063 Other current liabilities 441 432 478 463 620 620 620 620 Total current liabilities 3,572 3,574 4,647 7,002 6,930 6,930 6,930 6,930 Long-term debt 11,330 13,398 14,656 12,517 13,812 13,812 13,812 13,812 Other non-current liabilities 1,178 1,372 1,305 1,386 1,373 1,373 1,373 1,373 Total liabilities 16,080 18,344 20,608 20,905 22,115 22,115 22,115 22,115 Share capital 6,298 6,300 6,302 6,304 6,309 6,309 6,309 6,309 Reserves/R.E./others 8,603 8,780 9,807 10,454 11,596 12,364 13,305 14,612 Shareholders' equity 14,902 15,080 16,109 16,758 17,905 18,674 19,614 20,922 Minority interests 4,338 4,363 8,346 6,451 7,032 6,978 6,995 7,278 Total equity & liabilities 35,319 37,788 45,063 44,113 47,053 47,766 48,723 50,315 EV 11,850 12,805 17,573 19,177 18,330 18,988 18,732 18,328 Net debt/(cash) 5,926 8,682 9,630 13,236 11,885 13,052 13,375 13,499 BVPS (SGD) 3.511 3.548 3.788 3.941 4.206 4.383 4.604 4.911
Key ratios (%) Year to 31 Dec 2011 2012 2013 2014 2015 2016E 2017E 2018E Sales (YoY) (10.8) 9.3 6.4 11.8 21.3 (12.9) 3.0 6.0 EBITDA (YoY) (27.0) (2.9) 16.6 11.3 9.4 (22.6) 13.7 40.5 Operating profit (YoY) (26.8) (3.6) 17.0 10.7 9.7 (24.1) 14.5 42.7 Net profit (YoY) (25.8) (65.1) 36.1 40.4 16.8 7.4 14.5 12.6 Core EPS (fully-diluted) (YoY) (25.9) (65.0) 35.9 25.8 16.2 7.4 14.5 12.6 Gross-profit margin 35.5 37.2 35.2 35.2 31.0 31.5 32.0 32.5 EBITDA margin 38.7 34.3 37.7 37.5 33.8 30.1 33.2 44.0 Operating-profit margin 37.4 33.0 36.3 35.9 32.5 28.3 31.5 42.4 Net profit margin 35.0 11.2 14.3 18.0 17.3 21.3 23.7 25.2 ROAE 7.3 2.5 3.2 4.3 4.8 4.8 5.3 5.6 ROAA 3.1 1.0 1.2 1.6 1.8 1.9 2.1 2.3 ROCE 3.8 3.3 3.4 3.5 3.9 2.8 3.2 4.4 ROIC 4.3 3.5 3.6 3.5 3.4 2.7 3.0 4.0 Net debt to equity 39.8 57.6 59.8 79.0 66.4 69.9 68.2 64.5 Effective tax rate 11.8 13.3 11.5 13.4 18.7 11.7 11.9 14.0 Accounts receivable (days) 235.9 179.9 137.9 99.1 91.5 117.3 107.6 106.1 Current ratio (x) 4.2 4.1 3.3 1.7 1.8 1.6 1.5 1.4 Net interest cover (x) 2.9 2.7 3.2 3.7 3.6 2.6 2.8 4.0 Net dividend payout 32.2 32.0 40.5 33.0 36.0 34.5 31.2 25.5 Free cash flow yield n.a. n.a. 1.7 n.a. 11.9 n.a. 2.9 3.5 Source: FactSet, Daiwa forecasts
Company profile
CapitaLand is one of Asia's largest integrated real-estate companies. Its real-estate and hospitality portfolio includes homes, offices, shopping malls, serviced residences, mixed developments and self- storage facilities. CapitaLand's asset exposure by business unit as at 31 December 2015 consisted of CapitaLand Singapore (24%), CapitaLand China (28%), CapitaMalls Asia (30%), Ascott (15%), and corporate and others (3%).
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CapitaLand (CAPL SP): 26 February 2016
Landbank replenishment and asset reconstitution offer share-price catalysts
Against a backdrop of economic uncertainty, CapitaLand’s portfolio of investment properties (shopping malls, office, serviced residences) should provide the company with a resilient source of income to ride through this period. Accordingly, we forecast a China-led operating EBIT (excluding revaluations) CAGR of 9% for 2015-18, driven by the opening of new malls and integrated developments in China. We see 3 key share-price catalysts in the near term: 1) landbank replenishment at a reasonable price in China, 2) the reconstitution (disposal, redevelopment, recycle) of its Singapore assets on favourable terms, and 3) the relaxation of the property cooling measures in Singapore.
Landbank The potential replenishment of its landbank in China through M&A and JVs would give the replenishment in China group access to affordable land amid the current rising land cost environment, and be a via M&A and JVs would key share-price catalyst, in our view, as most of its residential projects are set to be keep land costs completed by the end of 2018, with only 3 developments remaining thereafter. affordable In Singapore, an impending oversupply of office space could provide the impetus for further asset reconstitution of its investment properties, which we think will be CapitaLand’s focus in 2016. Sales of its assets on favourable terms, particularly its non-core properties, would be a positive share-price catalyst, in our view. While cooling measures have dampened the outlook for the residential segment, we do not think such a scenario should be of great concern to investors, given the small contribution to GAV (less than 9%) of CapitaLand’s residential business in Singapore, on our estimates.
50% of GAV derived Strong China residential sales data … With an estimated 50% of CapitaLand’s GAV in from China China assets, we think investors should pay more attention to the company’s North Asian market, and less to its domestic market in Singapore. We view CapitaLand’s strategic focus on tier-1 and upper tier-2 cities favourably as they stand to benefit from the cities’ above-average GDP per capita and long-term urbanisation trend.
Residential sales hit Full-year 2015 sales value of residential properties in China hit a record high of CNY7.3tn record high of in 2015, according to China’s National Bureau of Statistics. In December, ASPs in Beijing, CNY7.3tn in 2015 Shanghai and Guangzhou rose strongly, by 8.3-15.5% YoY. The fourth tier-1 city – Shenzhen – was the exception, posting a 46.8% YoY increase. Select tier-2 cities, such as Hangzhou and Ningbo, where CapitaLand has a presence, also saw a 3.4-5.6% improvement in ASPs in December. We think this data provides credence to CapitaLand’s strategy of focusing on the tier-1 and upper tier-2 cities in China.
Rational adjustment Looking ahead, Daiwa’s China property analyst, Jonas Kan, believes the China residential process in China property sector is undergoing a rational adjustment process, which looks set to continue in residential under way 2016. He forecasts a 4% increase in ASPs in tier-1 cities, and a 3% rise in ASPs in tier-2 cities in 2016. However, Jonas estimates a 2-5% decline in ASPs in tier-3 cities in 2016, as those cities continue to clear inventory.
… but the cost of landbank replenishment must be sensible. As CapitaLand’s supply of new residential homes-to-be-launched will decline after 2018, and it takes about 2-3 years from the acquisition of new land parcels to the construction of the property, we think the company will look to replenish its landbank in 2016-17 in order to be launch-ready from 2019. Given the rising land prices in China, particularly in the tier-1 and upper-tier-2 cities, we are positive on CapitaLand’s approach to acquire landbank via M&A activity and JVs, in order to keep land costs affordable. The group has done so in the past with the purchase of 7 property sites through the acquisition of Orient Overseas Development in 2010.
In 4Q15, at least 3 China developers walked away from land parcels won in open tenders due to high land prices. In both instances, the final sale price was about a 50% premium to the initial asking price. We think this provides evidence to support Jonas’s view of a
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CapitaLand (CAPL SP): 26 February 2016
rational adjustment within the China residential property sector. Hence, we believe the acquisition of land at reasonable prices and in line with the company’s strategy of deepening its presence in tier-1 and tier-2 cities would be a positive share-price catalyst.
Rental income driven by 10 new malls and integrated developments in China. We expect the opening of investment properties in the group’s pipeline in 2016-18E, coupled with positive rental reversions of existing malls and integrated developments, to underpin its rental income growth in China. A spin-off of its Raffles City properties in China (operational: 4, under development: 4) would also be a positive share-price catalyst, albeit one that seems more long-term at the moment.
Redevelopment, Asset reconstitution to be a key feature in Singapore in 2016. We expect the large recycling and the upcoming supply of office space in Singapore to put downward pressure on office rents in disposal of assets are 2016-17. This would present an opportunity for the group to divest or redevelop some of its key themes in properties. In 2015, CapitaLand sold stakes in 2 of its non-core investments – the PWC Singapore in 2016 Building (30%) and Surbana (40%). In the near term, we think the group could look at the potential sale of the Wilkie Edge commercial building, as reported by the media. Further out, we understand CapitaLand would need to get permission to change the use of the Golden Shoe Car Park before it can progress with potential redevelopment plans.
Sale of non-core assets Turning to its retail segment, the group has announced plans to close its Funan mall by on favourable terms end-June 2016 for redevelopment purposes. In 2015, the group divested the Bedok Mall to could be positive share its subsidiary, CapitaLand Mall Trust (CMT) (CT SP, SGD2.11, Outperform [2]), while CMT price catalyst sold Rivervale Mall to a third party. It still has another 4 retail properties (Star Vista, Westgate, ION Orchard and Jewel @ Changi) as potential divestment candidates. A sale of its assets on favourable terms, particularly non-core properties, would be a positive catalyst for CapitaLand’s share price, in our view.
Concerns about Relaxation of cooling measures may provide short-term reprieve. In our view, a CapitaLand’s exposure relaxation of cooling measures could help to drive sales of CapitaLand’s residential units in to the Singapore Singapore. Such a move would help alleviate investor concerns surrounding extension residential market are charges, further price cuts, and move unsold inventory off the group’s balance sheet, overplayed, as it which we think would be a positive catalyst for its share price. However, concerns about a accounts for less than drag from the Singapore residential segment may have been overplayed, as this market 9% of its GAV constitutes a small proportion of the group’s valuation (less than 9% of GAV). On the other hand, an adjustment to the measures could be seen as a signal by the authorities that prices have “bottomed out” and lead to more aggressive bids in land tenders, which saw top bid premiums over the second bids narrow to 4.8% for 2015, from 17.2% for 2009, potentially resulting in a lower margins.
Undemanding valuation. Since July 2015, CapitaLand’s shares have been trading at more than 1SD below the stock’s past 11-year mean price-to-RNAV. The last time the stock traded at more than 1SD below its mean was during the GFC period. Currently, the shares are trading at a 41% discount to our end 2016E RNAV, which we think is unjustifiable as the high proportion of recurring income in the form of rental income from its portfolio of investment properties provides a more stable source of earnings than the revenue from sales of residential development units. The key risks to our call would be property tightening measures in China and an uncontrolled increase in new office and retail land supply in Singapore.
Valuation We initiate coverage with a Buy (1) rating and 12-month RNAV-based target price of SGD3.93, based on a 20% discount to our RNAV of SGD4.90. Our key assumptions include: 1) the addition of NPV to its future residential profit, 2) applying a 2-7% discount to the latest (31 December 2015) valuations of its non-listed operational retail and commercial properties, 3) assigning a PER of 15x to its fund-management business, 4) assigning the target or last traded price for the company’s listed REITs, and 5) booking its
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CapitaLand (CAPL SP): 26 February 2016
retail and commercial assets under development at cost. We think a discount of 20% applied to CapitaLand’s RNAV is fair as it is close to the company’s median price-to-SOTP discount of 17% since 2010.
CapitaLand: SOTP valuation breakdown Market Cap Share price No. of shares TP Upside Pro-rata GAV GAV Stake (SGDm) (in l.c./share) (m) (in l.c./share) (%) (SGDm) (SGD/shr) % of total Singapore - Residential 3,153 0.74 8.9% - Retail 3,422 0.81 9.6% - Commercial 757 0.18 2.1% - Listed REITs - CMT 29% 7,473 2.11 3,542 2.12 0% 2,190 0.52 6.1% - CCT 31% 4,078 1.38 2,955 1.31 -5% 1,219 0.29 3.4% China - Residential 4,669 1.10 13.1% - Commercial 957 0.23 2.7% - Retail - Malls 7,397 1.74 20.8% - Raffles City malls 4,151 0.98 11.7% - CRCT 34% 1,181 1.40 843 1.34 -4% 379 0.09 1.1% Ascott - Non-listed 1,375 0.32 3.9% - ART 46% 1,715 1.11 1,552 1.28 16% 919 0.22 2.6% Others - Fund management business 3,238 0.76 9.1% - CMMT 35% 3,017 1.49 2,025 429 0.10 1.2% - Retail malls 1,358 0.32 3.8% Total GAV (SGDm) 35,612 8.38 100.0% Less: Net debt (SGDm) (11,885) Less: Other liabilities (SGDm) (2,860) Total RNAV (SGDm) 20,868 Number of outstanding shares (m) 4,248 RNAV per share (SGD) 4.91 Discount to RNAV/share 20% Target price 3.93 Source: Bloomberg, Company, Daiwa forecasts Note: As of 25 February 2016
CapitaLand price-to-SOTP Trading currently at a (x ) 41% discount to our 1.6 end-2016E RNAV, and 1.4 more than 1SD below its 1.2 past-11-year mean price- 1.0 to-RNAV, which was last 0.8 seen during the GFC 0.6
0.4
Apr-05 Apr-07 Apr-08 Apr-10 Apr-13 Apr-06 Apr-09 Apr-11 Apr-12 Apr-14 Apr-15
Aug-04 Dec-04 Aug-05 Aug-07 Dec-07 Dec-09 Aug-10 Dec-10 Aug-12 Dec-12 Aug-13 Aug-15 Dec-15 Dec-05 Aug-06 Dec-06 Aug-08 Dec-08 Aug-09 Aug-11 Dec-11 Dec-13 Aug-14 Dec-14 Price-to-SOTP Mean +1 SD -1 SD Median
Source: Bloomberg, Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
Investment properties to drive strong earnings
Recurring sources to By 2018, we forecast CapitaLand to derive 79% of its EBIT from recurring sources, such account for 79% of as rental income from its portfolio of shopping malls, office buildings and serviced operating income in residences, up from 64% in 2015. We expect this development to be driven by its opening 2018E of 4 Raffles City developments and 6 shopping malls in China. Given the existing soft residential property market in Singapore and rising land costs in China, we are positive on this strategy as it would provide a more stable source of income for the group than simply the revenue from sales of residential development units.
EBIT growth driven by CapitaLand: EBIT breakdown by asset class retail, commercial and EBIT (SGDm) 2014 2015E 2016E 2017E 2018E By asset class mixed developments Residential 713 668 463 470 505 - Singapore 94 148 223 - China 369 322 282 Commercial and mixed developments 362 442 425 459 479 - Singapore 327 332 328 - China 98 127 151 Retail 519 548 698 801 962 - Singapore 373 402 448 - China 235 304 408 - Others 90 95 105 Ascott 188 216 300 351 411 Corporate and others -66 -32 27 25 17 Total 1716 1841 1914 2105 2374
As a percentage of EBIT (%) Residential 41.5% 36.3% 24.2% 22.3% 21.3% - Singapore 4.9% 7.0% 9.4% - China 19.3% 15.3% 11.9% Commercial and mixed developments 21.1% 24.0% 22.2% 21.8% 20.2% - Singapore 17.1% 15.7% 13.8% - China 5.1% 6.0% 6.4% Retail 30.3% 29.8% 36.5% 38.1% 40.5% - Singapore 19.5% 19.1% 18.9% - China 12.3% 14.4% 17.2% - Others 4.7% 4.5% 4.4% Ascott 11.0% 11.7% 15.7% 16.7% 17.3% Corporate and others -3.8% -1.7% 1.4% 1.2% 0.7% Total 100.0% 100.0% 100.0% 100.0% 100.0%
YoY growth (%) Residential -6.3% -30.7% 1.5% 7.5% - Singapore 57.7% 50.6% - China -12.8% -12.3% Commercial and mixed developments 22.1% -3.7% 7.9% 4.4% - Singapore 1.3% -1.2% - China 30.0% 18.8% Retail 5.6% 27.3% 14.8% 20.0% - Singapore 7.6% 11.5% - China 29.4% 34.3% - Others 6.2% 10.2% Ascott 14.6% 39.2% 16.9% 17.3% Corporate and others n.a. n.a. -9.7% -30.7% Total 7.3% 3.9% 10.0% 12.8%
Source: Company, Daiwa forecasts
Some 83% of its assets CapitaLand’s assets can be separated geographically by Singapore (36% of total assets are located in as at 31 December 2015), China (47%) and others (17%). About 75% of its assets Singapore and China generate recurring income, while the remaining 25% comprise residential and strata developments.
We believe management will focus on 3 key issues in 2016: 1) asset reconstitution for its retail and office assets in Singapore, 2) the recalibration of its investments in China towards tier-1 and upper tier-2 cities, and 3) the replenishment of its China landbank.
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: assets and operating income breakdown by asset CapitaLand: total assets breakdown by geography (as at 31 class December 2015) 100% Europe and 12% 90% 17% others 80% Other Asia 6% 30% 11% 70% 21% 60% 50% 24% 35% 40% China 30% 47% 20% 36% 10% 26% 0% Assets EBIT Singapore 36% Strata sales Commercial and IP Malls Serviced Residences
Source: Company Source: Company Note: Assets as of 31 December 2015, EBIT based on 2015
Redevelopment, Singapore. We expect CapitaLand to dedicate time to reconfiguring its retail and office recycling and disposals properties via asset reconstitution, which includes redevelopment (AEI), recycling (into of assets to be key REITs) or outright disposal (to third parties). While we see limited supply of shopping malls theme in Singapore in in the near term, supporting rents for its retail assets, a significant supply of office buildings 2016 coming onto the market in 2016-18 could place downward pressure on rents in the near term. We think this scenario will provide an opportune time for AEI or sales.
CapitaLand has shown restraint at recent auctions for new residential land launched by the government due to: 1) competitive bids, and 2) the softening of home prices due to subdued demand, in part a result of the government’s cooling measures introduced from 2009-13. We believe a key catalyst to sell its remaining residential units (accounting for less than 9% of GAV) would be an easing of these measures, which we expect sometime in 2H16. However, we remain unconvinced of the long-term benefits to CapitaLand’s margins of the cooling measures being relaxed due to higher land prices this move might induce, as developers could then begin bidding more aggressively, seeing the relaxation as a signal that the decline in home prices had “bottomed out”. Such an easing of the measures could reinvigorate healthy demand for land bids, hence pushing up land costs and further eroding developers’ margins.
CapitaLand to focus on China. CapitaLand has outlined 5 city clusters in China that it intends to focus on going 5 city clusters in China; forward. As of 31 December 2015, 84% of its assets (by property value) in China were mainly in tier-1 and located in these clusters. We note that these cities, mainly in the tier-1 and upper tier-2 upper tier-2 cities cities, have higher GDP per capita vs. China overall and stand to benefit from the country’s long-term urbanisation trend. We contend that the company enjoyed brisk sales in China’s residential property market in 2015 on the back of favourable regulatory changes that took place over the period.
In order to further entrench its position in China, CapitaLand has a pipeline of integrated development and residential projects to be rolled out over 2016-18. In view of rising land prices at open tender auctions, it aims to replenish its landbank via JVs and M&A.
Aims to deepen its Others. Apart from Singapore and China, CapitaLand will expand and deepen its presence presence in ASEAN, in ASEAN, with Vietnam being the prime candidate. We see CapitaLand benefiting from with Vietnam the prime favourable changes in real-estate regulations in Vietnam, which has sparked renewed candidate foreign investment interest in the country.
Asset reconstitution: a key theme in Singapore for 2016 Following our recent conversation with management, we got the impression that “Asset Reconstitution” would be the key theme for CapitaLand in 2016, namely the redevelopment, recycling or disposal of its assets. The concept of asset reconstitution is not new to CapitaLand, which has been engaged in such endeavours at least since 2007.
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CapitaLand (CAPL SP): 26 February 2016
Redevelopment. In December 2015, CMT announced plans to redevelop Funan DigitalLife Mall from 3Q16. The mall is targeted to be closed on 30 June 2016. We think this is timely given the recent openings of nearby buildings – Capitol Piazza (retail) and Singapore National Gallery (art/culture). The move would also unlock the unutilised GFA the land site offers. Currently, Funan has utilised 3.9 of its allowable gross plot ratio of 7.0, implying an untapped GFA of about 388,000 sq ft. The redevelopment should take 3 years.
Disposal and recycling Disposal. On 15 October 2015, CMT sold Rivervale Mall for SGD190.5m to AEW Advisors. of non-core/matured We view this move positively as the sale price was at a 64% premium to its valuation of assets could be share- SGD116m as of 30 June 2015. As the mall makes up only about 1% of CMT’s property price catalysts portfolio value, we think the move has also freed up management’s time to focus on malls with more significant contributions to the trust. The group also sold its stake in the PWC Building and Surbana during the year, which we view as non-core interests. Furthermore, back in 2007, the group had capitalised on the buoyant office market and sold its stakes in Hitachi Tower (Singapore), Chevron House (Singapore) and AIA Central (Hong Kong), recognising a total of about SGD521m in gains (a 27-41% premium to the carrying value).
Recycling. In October 2015, CapitaLand divested Bedok Mall to CMT for SGD783.1m. The mall was valued at SGD775m as of 30 June 2015, and had a property yield of about 5.1%, in line with CMT’s distribution yield. Bedok Mall is the first major mall in Bedok Town Centre located next to Bedok train station, and is part of an integrated development that includes a 583-unit private condominium developed by CapitaLand.
Golden Shoe car park Looking ahead, 2 properties stand out as prime candidates for asset reconstitution and Wilkie Edge purposes: Golden Shoe car park and the Wilkie Edge building. Both assets are held under building are potential CapitaLand Commercial Trust (CCT SP, SGD1.38, Hold [3]). In December 2015, The properties for asset Business Times reported that CCT’s retail and office space at Wilkie Edge in the Selegie reconstitution area was being marketed by some property agents. The asking price was at in a range of initiatives SGD1,800-2,000 per sq ft. This implies a valuation range of SGD276-307m, a 42-58% premium to its latest valuation of SGD194m as of 30 June 2015.
In November 2015, The Business Times reported that the Golden Shoe car park could be up for redevelopment in 2016. According to management, rezoning the property from a transport facility to a commercial asset would be a key hurdle to ascertain before any discussions of a redevelopment could be tabled. However, it is not without precedence. CapitaGreen was formerly a car park before its redevelopment in 2012.
CapitaLand: summary of recent assets disposal and recycling transactions Actively disposing of Date Property Seller Buyer Price (SGD m) Oct-15 Bedok Mall CapitaLand CMT 783.1 and recycling assets Oct-15 Rivervale Mall CMT AEW Advisors 190.5 Sep-15 6 Japan properties ART Samty Co., Ltd 52.6 Jun-15 PWC Building (30% stake) CapitaLand DBS Bank Ltd 150.0 Jun-15 Serviced residence and rental housing properties CapitaLand ART 246.0 Feb-15 Surbana (40% stake) CapitaLand Third party 104.0 Aug-14 Serviced residences CapitaLand ART 131.6 May-14 Stakes in industrial building, mall & carpark in Hong Kong CapitaLand Third party 58.2 Mar-14 Australand Property Group (39.1% stake) CapitaLand Third party 970.1 Jan-14 Westgate Tower (office) CapitaLand, CMA, Low Keng Huat (Singapore) and Sun 579.4 CMT Venture Homes Nov-13 Grand Canyon Mall CMA CRCT 367.5 Nov-13 Australand Property Group (20% stake) CapitaLand Third party 496.0 Nov-13 Technopark @ Chai Chee CapitaLand Viva Industrial REIT 193.0 Jul-13 Transfer stake in Luwan project CMA CMCDF III - Jul-13 UK investment properties (33% stake) CapitaLand Third party 90.7 Jun-13 3 service residences properties (China) and 11 rental housing CapitaLand ART 165.0 properties (Japan) May-13 Service residences and rental housing properties Ascott Third Party 165.0 Apr-13 Transfer stake in Qingdao and Wuhan projects CMA CMCDF III - Mar-13 Residential land site in Beijing CapitaLand Third party 97.0 Oct-12 Service residence CapitaLand Jasen Industries Limited 50.0 Jul-12 Cairnhill service residence redevelopment ART CapitaLand 359.0 Jul-12 United Malayan Land Bhd (20.8% stake) CapitaLand Seleksi Juang Sdn Bhd 62.6 Jun-12 Hougang Plaza CMT Oxley Bloom Pte. Ltd. 119.1 Potential Dec-15 Wilkie Edge CCT 275.8-306.5
Source: Company, compiled by Daiwa
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CapitaLand (CAPL SP): 26 February 2016
Stage set for a relaxation of cooling measures in 2H16
We think investors should focus on 5 key items for CapitaLand’s residential business in Singapore:
1. Property prices have dropped by 8.4% since 3Q13 and look likely to fall further … 2. … but reasonably priced developments have seen strong take-up rates despite the broader market slowdown 3. Possible adjustments to cooling measures in 2H16 could spell short-term gains for developers … 4. … but would be likely to result in long-term pain as they could lead to more aggressive bidding for land parcels 5. In the end, the easing of cooling measures would be unlikely to have a large impact on CapitaLand’s earnings given its minimal exposure to the residential market in Singapore (<9% of GAV)
We forecast a 4-5% YoY decline in home prices in Singapore for 2016 due to: 1) rising vacancy rates and falling rents, and 2) the looming mismatch of upcoming supply and demand for private residential properties. As such, we expect to see a continual gradual decline in the property price index, which has fallen by 8.4% since 3Q13. We believe that this situation could set the stage for the government to adjust some of its cooling measures in 2H16.
While a relaxation of property cooling measures would be a positive for CapitaLand in the short term, as it would be able to sell its existing inventory of residential units, we remain unconvinced of the long-term prospects given the group’s limited exposure to the Singapore residential market (<9% of GAV). Also, we think that any unwinding of the cooling measures could signal to developers that the market had “bottomed” and translate into more aggressive bids in land tenders, which saw premiums of top bids over second bids narrow to 4.8% in 2015 from 17.2% in 2009.
Gradual decline sets the stage for an adjustment to the cooling measures PPI down 8.4% since The Property Price Index (PPI) corrected by 8.4% from its peak in 3Q13 to 4Q15, its 3Q13, its longest losing longest losing streak in 17 years. Non-landed private residential properties also saw streak in 17 years … declines in sale prices (7-9%) and monthly rents (5-9%) over the same period. Sale prices in the rest of the central region (RCR) fell the most among the 3 regions, yet the decline in the region’s rents was the softest. The overall vacancy rate also rose from 5.2% in 1Q13 to 8.1% as of 4Q15, the highest since 4Q05, with non-landed properties facing a sharper increase than landed residential.
… but the pullback is However, given the 62% rise in the PPI between 2Q09 and 3Q13, the current pullback is minor vs. the 45% fall minor, in our view. We also note that the current correction is mild compared with previous during the AFC, and downturns. The PPI fell by 45% during the Asian Financial Crisis (AFC) (2Q96 to 4Q98) 25% decline during the and 25% during the GFC (2Q08 to 2Q09). In our opinion, a key event for the government GFC to react would be the occurrence of a severe shock to the system, akin to the 2008-09 GFC.
As we see it, this situation sets the stage for adjustments to the property cooling measures introduced in 2009-13, whose objectives were to curb speculative investments and hoarding of land from driving up Singapore property prices. The introduction of a total-debt- servicing-ratio (TDSR) framework in June 2013 appears to have been the tipping point.
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CapitaLand (CAPL SP): 26 February 2016
URA and HDB resale price indices Property price index of Singapore non-landed residential properties 180 180 160 160 140 120 140 100 120 80 60 100 40 80 20
0 60
2002Q1 2007Q1 2012Q1 1995Q1 1996Q1 1997Q1 1998Q1 1999Q1 2000Q1 2001Q1 2003Q1 2004Q1 2005Q1 2006Q1 2008Q1 2009Q1 2010Q1 2011Q1 2013Q1 2014Q1 2015Q1
2005Q1 2006Q3 2010Q1 2013Q3 2015Q1 2004Q1 2004Q3 2005Q3 2006Q1 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2014Q1 2014Q3 2015Q3 URA price index HDB resale price index Overall CCR RCR OCR
Source: Realis, URA,HDB, Daiwa Source: Realis, URA, Daiwa Note: 2009Q1 base year = 100 Note: 2009Q1 base year = 100; CCR - core central region, RCR - rest of central region, OCR - outside central region
Median price of non-landed residential properties (SGD/sqm) Median rental of non-landed residential properties (SGD/sqm) (SGD psm) (SGD psm) 18,000 50 16,000 45 14,000 40 12,000 35 30 10,000 25 8,000 20 6,000 15 4,000 10 2,000 5
0 0
2010Q1 2010Q3 2011Q1 2011Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3
2006Q3 2011Q1 2014Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2015Q1 2015Q3 CCR RCR OCR Overall CCR RCR OCR
Source: Realis, URA, Daiwa Source: Realis, URA, Daiwa Note: CCR – core central region, RCR – rest of central region, OCR – outside central region; Note: CCR – core central region, RCR – rest of central region, OCR – outside central region; 2009Q1 base year = 100 2009Q1 base year = 100
Vacancy rate of private residential units (excl EC) by type Vacancy rate of private residential units (excl EC) by region (%) (%) 14 20 18 12 16 10 14 12 8 10 8 6 6 4 4 2 2 0
0
1994Q1 1997Q1 2004Q1 2014Q1 1992Q1 1993Q1 1995Q1 1996Q1 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2013Q1 2015Q1
Central East North East
1992Q1 1999Q1 2006Q1 2013Q1 1988Q1 1989Q1 1990Q1 1991Q1 1993Q1 1994Q1 1995Q1 1996Q1 1997Q1 1998Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 2014Q1 2015Q1 Overall Landed Non-landed North West
Source: Realis, URA, Daiwa Source: Realis, URA, Daiwa
Looming supply-demand mismatch for private residential market We are concerned about the incoming supply of residential properties to the market, particularly for private residential units. The construction of about 155,000 new residential units is expected to be completed in 2016-19, with public housing contributing the lion’s share (57% of total), followed by private properties (34%) and executive condominiums (EC) (9%).
The average supply of new private residential units in 2016-18 is estimated at 15,550 units. Primary sales in 2014- This is higher than the long-term annual primary demand average of 10,000 units. More 15 the softest since so, primary sales in 2014-15 were soft at 7,300-7,400, below the long-term average and 2008 the lowest 2 years since 2008 (sales in 2014 were the lowest since 2008 at 7,300 while 2015 was second lowest at 7,400) continuing the downtrend seen since 2012.
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CapitaLand (CAPL SP): 26 February 2016
While the take-up rate improved from 94% in 2013 to 105% in 2015, we note that the number of units launched fell from a peak of 21,500 homes in 2012 to 7,100 homes in 2015, the lowest level since 2008.
A similar decline in residential units sold was seen in the secondary market. Nonetheless, we would note that the supply of private residential units (excl. EC) in the pipeline stood at 60,200 as of 4Q15, down 38% since 4Q12.
Supply of new residential units by expected year of completion as of January 2016 155,000 new residential (No. of units) units to be completed by 60,000 end-2019 50,000
40,000 18,971 21,906 14,351 30,000 10,402 3,296 4,561 2,883 5,821 6,540 20,000 862 26,000 25,000 25,000 10,000 19,000 19,000
0 2015 2016 2017 2018 2019 Public housing EC Private
Source: Ministry of National Development blog
Primary home sales by developers Private residential property transactions (No. of units) (No. of units) 25,000 190% 45,000 40,000 170% 20,000 35,000 150% 30,000 15,000 130% 25,000 20,000 10,000 110% 15,000 90% 10,000 5,000 5,000 70% 0
0 50%
1998 2005 1996 1997 1999 2000 2001 2002 2003 2004 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1997 2001 2005 2009 2013 1998 1999 2000 2002 2003 2004 2006 2007 2008 2010 2011 2012 2014 2015 1996 Primary Secondary Units launched Primary Sales Take-up rate Overall average Primary average
Source: CEIC, URA, Daiwa Source: CEIC, URA, Daiwa
Supply of private residential units in the pipeline (No. of units) 120,000
100,000
80,000
60,000
40,000
20,000
0
1991Q3 1999Q3 2005Q1 2013Q1 1991Q1 1992Q1 1992Q3 1993Q1 1993Q3 1994Q1 1994Q3 1995Q1 1995Q3 1996Q1 1996Q3 1997Q1 1997Q3 1998Q1 1998Q3 1999Q1 2000Q1 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 Under construction With provisional permission With written permission Others
Source: Realis, URA, Daiwa
Following the government’s tightening up of the regulations for launching new land sites for private residential use (eg, by reducing the new land sites available for development and number of units developers can launch), the releases for 1H16 are the lowest they have been since 2007. This continues a downtrend that began in 2H13.
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CapitaLand (CAPL SP): 26 February 2016
Government land sales programme for private residence by number of units 1H16 land sales for new (No. of units) private residential units 16,000 is at the lowest level 14,000 since 1H07 12,000 10,000 8,000 6,000 4,000 2,000 0 1H07 2H07 1H08 2H08 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 Confirmed Reserve
Source: URA
PPI for CCR and RCR The PPI for non-landed residential properties declined by 7.7% during 3Q13-4Q15, similar saw the largest to the overall PPI for all private residential properties. However, the decline was not declines in 3Q13-4Q15, uniform, with the high-end segment impacted more severely as the RCR saw the largest while the OCR PPI fall (-9%) over the period, followed by the core central region (CCR) (-8.5%), while the fared the best outside central region (OCR) (-6.7%) fared the best. We expect this trend to persist and anticipate a 4% decline in the PPI for non-landed residential properties for 2016, with the biggest fall being seen for the RCR (-4.5%).
Available stock of Singapore private residential property - Private residential units under construction as of 4Q15 breakdown by region as of 4Q15 West region (No. of units) North region 4.5% 3.1% 25,000 North East region 20,000 18.5% 15,000 Central region 50.2% 10,000
5,000
East region 0 23.8% 2016 2017 2018 2019 2020 >2020 CCR RCR OCR
Source: Realis, URA, Daiwa Source: URA
YoY change in property price index of non-landed residential properties Non-landed residential 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E PPI could fall by 4-5% Overall 4.5% 11.1% 32.6% -5.3% 0.5% 14.0% 4.6% 2.5% 1.9% -3.5% -3.6% -4.0% -3.0% 2.5% CCR 6.0% 17.1% 32.6% -5.6% -1.8% 14.2% 4.0% 0.8% -1.9% -4.1% -2.5% -4.0% -3.0% 3.0% YoY for 2016E RCR 1.3% 3.0% 30.4% -4.7% 3.1% 17.6% 4.5% 1.6% -0.1% -5.3% -4.3% -4.5% -3.5% 2.5% OCR 1.1% 4.3% 26.3% -2.8% 11.7% 15.0% 7.6% 6.5% 6.5% -2.2% -3.7% -3.5% -2.5% 2.0%
Source: Realis, URA, Daiwa forecasts
Location, location, price A silver lining to the property data is the 9.9% YoY increase in property sales volume in 2015, driven by the resale market (+24.1% YoY). We think softening prices have encouraged investors to return to the market. However, new sales declined by 2% over the same period. Nonetheless, this decline helped reduce unsold stock of private residential property, which fell by 30% between 4Q13 and 3Q15.
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CapitaLand (CAPL SP): 26 February 2016
Stock of private residential property (excl EC) unsold Sales volume for private residential property (excl EC) (No. of units) (No. of units) 50,000 16,000 45,000 14,000 40,000 12,000 35,000 30,000 10,000 25,000 8,000 20,000 6,000 15,000 4,000 10,000 5,000 2,000
0 0
2008Q3 2013Q1 2005Q1 2009Q1 2013Q1 2006Q3 2007Q1 2007Q3 2008Q1 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2004Q1 2004Q3 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 CCR RCR OCR New sale Resale Subsale
Source: Realis, URA, Daiwa Source: Realis, URA, Daiwa
Private residential We think home buyers have become more selective in recent times, and note that buyers projects with attractive have been willing to open their purse strings if an attractive purchase is present. For prices enjoyed strong example, demand for High Park Residences, a development project from CEL take-up rates Development, saw a strong take-up rate at its launch in July 2015, with 99% of the units launched sold in the launch month.
We think the strong take-up rate was attributable to 2 factors: 1) the low price point – High Park Residences was at the time the only private residential development (non-EC) with a median price of under SGD1,000 per sq ft, and 2) the smaller amount per unit – a studio apartment in High Park Residences sold for SGD0.4m, 25% lower than the average price of more than SGD0.5m for nearby studio apartments.
For private residential projects, which saw the weakest take-up rate in 2015 – Pollen & Bleu (11% sold) and Marine Blue (19% sold), we note that the median price for units transacted ranged from SGD1,800 to SGD1,900 per sq ft.
Residential projects launched in 2015 Affordability is key to Project Total units Units sold-to-date % of units sold drive sales volume as High Park Residences 1390 1286 92.5% Botanique Bartley 797 545 68.4% buyers become more North Park Residences 920 504 54.8% selective Adana @ Thomson 74 39 52.7% The Brownstone EC 638 328 51.4% The Poiz Residences 731 335 45.8% Hilbre28 28 12 42.9% The Amore EC 378 157 41.5% Thomson Impressions 288 109 37.8% Westwood Residences EC 480 169 35.2% Sims Urban Oasis 1024 356 34.8% The Vales EC 517 157 30.4% Sol Acres EC 1327 373 28.1% Symphony Suites 660 177 26.8% Kingsford Waterbay 1165 312 26.8% Principal Garden 663 162 24.4% Signature at Yishun EC 525 111 21.1% Neem Tree 84 16 19.0% Marine Blue 124 23 18.5% The Criterion EC 505 63 12.5% Pollen & Bleu 106 12 11.3%
Source: The Business Times, Realis, URA, Daiwa Note: Data as of 11 January 2016
Widening pool of prospective buyers for build-to-order and executive condos While we think the recent changes to the income ceiling for public housing could weaken demand for private residential houses, we see a minimal impact due to rising incomes and aspiration among HDB home-owners towards private-property ownership.
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CapitaLand (CAPL SP): 26 February 2016
In 2015’s National Day Rally speech, Prime Minister Lee Hsien Loong announced that the income ceilings for new build-to-order (BTO) and EC flats would be raised to SGD12,000 Income ceilings for and SGD14,000 per month from SGD10,000 and SGD12,000 per month, respectively. The BTOs and ECs raised in change was done to help more Singaporeans qualify for subsidised housing. 2015 … PM Lee noted that “the change was timely as incomes have gone up further since the income ceiling was last raised 4 years ago.” Back in 2011, the income ceiling was raised by a similar quantum of SGD2,000 per month for both BTO and EC flats, from SGD8,000 to SGD10,000 per month to SGD10,000 and SGD12,000 per month.
…likely to benefit ECs While we believe the move will benefit ECs more than BTO flats, we do not think private more than BTOs, as properties will see a significant fall in demand, as Singapore citizens and permanent citizens and PRs residents (PRs) continue to aspire to own a condominium or private property. During 2000- continue to aspire to 14, the key shift in dwelling types was the increase in households living in condominiums own private residential and other apartments at the expense of 3-room flats. We see this trend continuing, fuelled properties by faster-than-average monthly household income growth within the 51st to 80th income deciles, who are the likely buyers of ECs and private properties.
The take-up rate since the income ceiling was raised has been encouraging, in our view. According to National Development Minister Lawrence Wong, almost 1 in 3 new EC buyers have benefited from the new SGD14,000 income ceiling since its introduction in August 2015.
Singapore resident households by type of dwelling HDB Dwellings (%) Citizen/PRs still want to Condominiums & Other Landed Year Total1 (%) live in condominiums Total 1- & 2- Room 3-Room 4-Room 5-Room & Apartments (%) Properties (%) HDB2 Flats3 Flats Flats Executive Flats 2000 100.0 88.0 5.0 25.8 33.1 23.5 6.5 5.1 2001 100.0 86.5 4.5 25.0 32.3 24.2 6.8 6.1 2002 100.0 85.8 4.3 23.4 32.8 24.8 7.1 6.6 2003 100.0 84.6 4.5 22.8 32.2 24.7 8.3 6.7 2004 100.0 83.9 4.1 22.4 31.5 25.4 10.1 5.6 2005 100.0 84.4 4.3 20.7 32.5 26.6 9.8 5.4 2006 100.0 83.1 4.4 21.8 31.7 24.8 10.9 5.7 2007 100.0 83.2 4.2 20.6 32.1 26.1 11.1 5.4 2008 100.0 82.8 3.9 20.4 32.0 26.2 11.2 5.7 2009 100.0 83.6 4.4 20.2 32.0 26.6 10.5 5.5 2010 100.0 82.4 4.6 20.0 31.9 25.6 11.5 5.7 2011 100.0 82.7 4.6 20.4 32.1 25.5 11.1 5.8 2012 100.0 81.6 4.7 18.6 32.6 25.5 12.1 6.0 2013 100.0 81.9 5.0 19.0 32.6 25.1 12.2 5.5 2014 100.0 80.4 5.3 18.3 32.2 24.4 13.5 5.8
Source: Singapore Department of Statistics Note: A resident household refers to a household headed by a Singapore citizen or permanent resident 1‘Total’ includes other types of dwelling not shown, e.g. non-HDB shophouses etc. 2 Includes non-privatised Housing and Urban Development Corporation (HUDC) flats. 3 Includes HDB studio apartments.
Average monthly household income (incl employer’s CPF contributions) from work among resident employed households by deciles Year Total (SGD) 1 to 10 11 to 20 21 to 30 31 to 40 41 to 50 51 to 60 61 to 70 71 to 80 81 to 90 91 to 100 2004 6,285 1,232 2,199 2,988 3,786 4,648 5,504 6,633 8,012 10,350 17,493 2005 6,593 1,257 2,257 3,116 4,020 4,859 5,865 7,136 8,641 10,701 18,076 2006 6,792 1,258 2,305 3,182 4,038 4,971 6,027 7,180 8,809 11,048 19,100 2007 7,431 1,321 2,418 3,379 4,335 5,358 6,561 7,928 9,479 12,386 21,146 2008 8,414 1,399 2,700 3,831 4,906 6,055 7,492 8,957 10,820 14,013 23,968 2009 8,195 1,361 2,696 3,787 4,978 5,980 7,319 8,798 10,694 13,423 22,909 2010 8,726 1,497 2,940 4,158 5,418 6,603 7,840 9,310 11,105 13,943 24,442 2011 9,618 1,581 3,135 4,421 5,794 7,032 8,436 10,101 12,306 15,509 27,867 2012 10,348 1,644 3,302 4,782 6,183 7,608 9,133 10,894 13,186 16,366 30,379 2013 10,469 1,711 3,372 4,993 6,376 7,993 9,469 11,293 13,807 16,984 28,688 2014 11,143 1,775 3,641 5,226 6,863 8,303 10,108 11,861 14,496 18,017 31,142 Growth 2004-2014 77.3% 44.1% 65.6% 74.9% 81.3% 78.6% 83.6% 78.8% 80.9% 74.1% 78.0% CAGR 5.9% 3.7% 5.2% 5.7% 6.1% 6.0% 6.3% 6.0% 6.1% 5.7% 5.9%
Source: Department of Statistics
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CapitaLand (CAPL SP): 26 February 2016
On 30 December 2015, Mr. Wong stated that the HDB would release 18,000 BTO flats in 2016, up from 15,000 in 2015. He added that the BTO application rate for first-timer families (applying for 3-room and bigger flats in non-mature estates) had stabilised to about 1.6x, implying that most applicants would have been able to purchase their flats on their first attempt. The enlarged supply (vs. 2015) was in response to the increased demand seen due to recent changes in housing policy, such as the raised income ceilings (which allows more families to qualify for BTO flats) and enhanced grants.
SHG revised to include Apart from changes to the income ceiling, the Special CPF Housing Grant (SHG) was more households revised to cover more households. From August 2015, households with a monthly income of SGD8,500 and below were entitled to a maximum grant of SGD40,000, up from SGD20,000. Previously, only households with an income of SGD6,500 and below were eligible for the grant. The SHG income ceiling had been raised from SGD2,250 to SGD6,500 in 2013.
Adjustments to cooling measures expected in 2H16 We think these factors set the stage for the government to step in and adjust its cooling measures in 2H16, as they have met the objectives of reducing speculative land investments and soften home prices in a gradual manner to ensure affordability for its citizens without a severe shock to asset values. While it is likely to begin with tweaks to stamp duties, we believe the government will unwind its measures in phases, lest it gives off a signal that the market has bottomed and cause a spike in prices once again, unwinding the correction developed over the past 9 quarters.
We do not expect the government to loosen measures related to financing limits, such as the TDSR and loan-to-value limit, as these help promote prudent purchases of residential homes without going above a buyer’s ability to service the loans. They also help reduce the chances of a widespread default in the event of a sharp rise in interest rates or loss of jobs as the mortgage amounts are more manageable.
Daiwa’s view of potential loosening of property cooling measures Adjustments to stamp Supply side Demand side duties could be the first More likely Seller stamp duties Additional buyer stamp duties step towards the loosening of cooling Less likely Government land sales programme Loan tenure limits measures Mortgage servicing ratio Total debt servicing ratio EC resale levy Loan to value limits Minimum cash payments
Source: URA, Daiwa
Adjustments to stamp duties could be a first step We think stamp duties will be the first demand-side measure to be adjusted. Buyer stamp duties, which go up to 15% for foreigners and non-individuals, have curbed home purchases made by foreigners since 2011. Foreigners made up 23.7% of new private residential sales in 2015, down from 29% in 2011. Geographically, the CCR and RCR saw the largest falls in foreign purchases in percentage terms, down 77% and 69%, respectively, over the same period.
Singapore residential property: additional buyer stamp duties Additional buyer stamp duties (ABSD) Property companies Type of buyer Buyer stamp duties have to pay 15% of 8 Dec-11 to 11 Jan-13 12 Jan-13 to present 1st home - - home prices to buy out Citizen 2nd home - 7% unsold units 3rd and beyond 1% on first SGD180k; 3% 10% 2% on next SGD180k; 1st home - 5% PR 3% for remainder 2nd and beyond 3% 10% Foreigners / non-individuals 10% 15%
Source: URA
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CapitaLand (CAPL SP): 26 February 2016
New home sales in Singapore: breakdown by buyer origin New home sales in CCR: breakdown by buyer origin (No. of units) 100% 25,000 80% 20,000 60% 15,000
40% 10,000
5,000 20%
0 0% 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015 Singaporeans Foreigners Singaporeans Foreigners
Source: URA Source: URA
New home sales in RCR: breakdown by buyer origin New home sales in OCR: breakdown by buyer origin 100% 100%
80% 80%
60% 60%
40% 40%
20% 20%
0% 0% 2008 2009 2010 2011 2012 2013 2014 2015 2008 2009 2010 2011 2012 2013 2014 2015 Singaporeans Foreigners Singaporeans Foreigners
Source: URA Source: URA
Extension charges and additional buyer stamp duties (ABSD) One of investors’ concerns is the implication of extension and ABSD charges on property developers. Under the Residential Property Act (RPA), “foreign developers” must obtain a Qualifying Certificate (QC) when they buy private residential land via a collective sale (from private owners) for development. Foreign developers are defined as developers whose shareholders and directors are not all Singaporean. This includes listed companies that have some foreign shareholders.
Extension charges of The RPA states that the developer shall complete construction of the development and up to 24% of the land obtain the Temporary Occupation Permit (TOP) within 5 years from the date of the cost payable on unsold collective sale order for a collective sale deal approved under the land titles (strata) act. units for land obtained The developer is required to sell all the residential units in the development within 2 years via collective sale of issue of the TOP. In the event the developer is unable to fulfil the criteria, it will face extension charges of 8%/16%/24% per year for the first/second/third and subsequent year of the land price on a pro-rated basis based on the remaining unsold units. By limiting “foreign developers’” holding period, the QC scheme was introduced to prevent them from hoarding land in Singapore for speculative purposes, in our view. Extension charges up to 24% of land cost For land obtained through the government land sale programme, the developer must payable on complete the development within 5 years of acquiring the land, but need not sell all the uncompleted projects after 5 years for land units within the project. If it is unable to do so, the developer will have to pay an extension obtained via tender premium, similar to the extension charge on land obtained through collective sale.
Estimated ABSD According to the Inland Revenue Authority of Singapore, property developers may apply charge of 18.75% of for remission of ABSD (15% of land cost) on new land parcels acquired after 8 December land cost if developer 2011 (or after 1 July 2012 for land acquired through collective sale). The developer must cannot finish commence construction within 2 years and complete construction and sale of all units in construction and sale the project within 5 years from acquiring the land. If it does not meet the requirement, the of new land parcels developer would have to pay the 15% in ABSD, plus a 5% interest per year on the ABSD within 5 years (total: 18.75% of land cost).
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CapitaLand (CAPL SP): 26 February 2016
Extension charges to We reviewed the outstanding unsold units in residential projects built/under development have minimal impact in by listed developers to estimate the potential extension charges to be paid in 2016-17 CapitaLand’s cash (Appendix 3). We estimate an impact of less than 1% from extension charges on balance CapitaLand’s cash balance as of 31 December 2015.
We note that CapitaLand would not face any ABSD charges until 2H17, if it is unable to sell all the units in Sky Vue. We estimate an ABSD charge of SGD94.7m related to the project. This translates into 1.8% of the group’s cash position as of 31 December 2015.
Some developers have opted to manoeuvre around the charges by: 1) offering discounts, 2) delisting, or 3) selling unsold units to a privately-held Singapore company. The buyer of the units would have to pay the ABSD of 15% of the homes’ purchase price. However, this can be easily sidestepped by lowering the selling price by a similar percentage.
Discounts 7-20% discounts given Property developers can consider offering discounts on unsold units to entice buyers. In by CapitaLand on November 2015, CapitaLand launched its remaining 182 units at Sky Vue at a discount of unsold units to entice about 7% across unit types, according to The Edge Property. buyers In April 2014, CapitaLand relaunched Sky Habitat, its residential development in Bishan, at an estimated 10-15% discount to its initial launch prices. This was in response to several additional cooling measures introduced since Sky Habitat’s initial launch in April 2012. CapitaLand has also slashed prices at other projects before. In early 2013, it cut prices at the 1,040-unit The Interlace by up to 20%. It also cut prices at the 1,715-unit D’Leedon by 15%.
Delist In May 2015, Popular Holdings delisted to avoid QC penalties, which could cost up to SGD99m, according to The Straits Times. The offer price of SGD0.32 per share represented a 40% premium to its prior month’s volume-weighted average price. Coupled with the thin average daily trading volume in the 12 months up to the announcement of the delisting (about 0.10% of shares held in public hands), we think the offer highlights the severity of extension charges that Popular faced.
In March 2013, luxury property developer SC Global delisted and applied successfully to remove the QCs on all its projects. This meant that it did not have to pay any extension charges related to the unsold units in its development projects. The Singapore Land Authority explained that SC Global’s QCs were cancelled as it had become a Singapore company.
Delisting route unlikely Further back in 2010, Soilbuild Group had delisted and got its QCs cancelled. In 2013, it for large developers relisted the firm, without having to pay the charges. While this may work for smaller developers where the main shareholder could own a majority of the company, it would be less straightforward for companies with institutional investors worldwide, in our opinion.
Sell to a privately held Singapore company Developers could In order to avoid paying the hefty fines, some developers have chosen to set up a special offload unsold units to purpose vehicle (SPV) to buy out their properties. However, they are required to pay an a SPV to avoid ABSD charge of 15% of the sales value. penalties In December 2014, the privately held parent company of Hiap Hoe Holdings (HIAP SP, Non-rated) and its JV partner, SuperBowl Holdings, bought all 48 units in its condominium development, Treasure on Balmoral, after failing to sell a single unit. The property was initially launched in September 2012 at a sales price of SGD2,044-SGD2,375 per sq ft.
In October 2013, Hiap Hoe approached Savills Singapore to market the property via a private treaty with a sale price of SGD2,100 per sq ft, but did not garner any potential suitors. In July 2014, Hiap Hoe launched an expressions of interest for a bulk sale at a
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CapitaLand (CAPL SP): 26 February 2016
guide price of SGD1,850 per sq ft. Although it received some offers, the highest was SGD1,750 per sq ft, some 5.4% below the guide price.
Short-term gains… potential long-term pains Relaxation of cooling We believe any relaxation of the cooling measures would augur well for CapitaLand and measures could help potentially help boost sales of its residential projects. The number of units it sold and its home sales … sales value for 2015 was the weakest in the past 4 years. However, we do not think the easing of cooling measures would have a large impact on CapitaLand’s earnings, given the group’s minimal exposure (<9% of GAV) to Singapore’s residential market.
… but lead to more We are cautious on the long-term impact of any relaxation of cooling measures, as any aggressive bids in land easing could be interpreted by developers as a bottoming of home prices and parcel tenders subsequently lead to more aggressive bidding in land tenders. We note that CapitaLand has not won any new land sites in Singapore since June 2013, when it acquired a land parcel along Coronation Road for landed houses.
As of 31 December 2015, CapitaLand had units in several completed projects which remained unsold. Notably, Sky Habitat was only 74% sold. Upcoming concerns include Marine Blue (25% sold). However, we note that Singapore residential projects only make up 7% of our GAV, and we think it is unlikely to be a major cause of concern for investors.
CapitaLand: sales of launched residential projects in Singapore as of 31 December 2015 CapitaLand has sold Project Total units Units sold % of total units sold % completed 86% of its residential Bedok Residences 583 571 98% 100% Urban Resort Condominium 64 62 97% 100% units in Singapore The Orchard Residences 175 168 96% 100% d'Leedon 1715 1526 89% 100% The Interlace 1040 910 88% 100% Sky Habitat 509 381 75% 100% Sky Vue 694 590 85% 84% Marine Blue 124 31 25% 63% Total 4904 4239 86%
Source: Company
Number of residential units sold in Singapore Sales value of residential units sold in Singapore (No. of units) (SGD m) 1,400 3,000
1,200 109 2,500 240 1,000 468 2,000 560 800 1,500 368 600 139 352 1,000 400 677 70 544 1275 4241 500 166 117 147 200 202 93 104 109 161 3745 379 253 106 0 57 34 69 0 88 87 197 2012 2013 2014 2015 2012 2013 2014 2015 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Source: Company Source: Company
Management said it sees low single-digit net margins for Singapore residential developments. The key expense item is the land cost, which constitutes up to 60% of all expenses. However, in our view, the softer outlook for home sale prices and rents, as well as cooling measures introduced over the years have led to restrained bidding at recent land tenders among developers.
Price premium of top-2 For private residential land parcel tenders, the average premium between the top-2 bids bids in private narrowed from 17.2% in 2009 to 4.8% in 2015. The highest difference in bids seen in 2009 residential land parcel was 35%, in contrast to 9.4% seen in 2015. A tender in January 2016 for a land parcel in tenders narrowest Siglap Road had a premium of a mere 4%. While the average difference between the top-2 since 2009 bids for EC land parcels appears to have rebounded from a low in 2012 to a figure similar
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CapitaLand (CAPL SP): 26 February 2016
to 2010-11, we note that the highest difference in bids in 2012-15 was 10%, below the 15- 16% seen in 2010-11.
Difference in bids for private residential land parcel tenders Difference in bids for EC land parcel tenders Year Average difference between top-2 bids Highest difference Lowest difference Year Average difference between top-2 bids Highest difference Lowest difference 2015 4.8% 9.4% 1.0% 2015 6.8% 9.7% 3.8% 2014 6.1% 15.3% 2.1% 2014 2.8% 10.0% 0.5% 2013 8.9% 47.4% 0.1% 2013 3.6% 9.1% 1.4% 2012 7.3% 19.3% 0.1% 2012 2.7% 8.9% 0.1% 2011 7.0% 27.2% 0.4% 2011 6.6% 14.7% 0.4% 2010 9.8% 31.0% 2.5% 2010 6.2% 15.5% 0.6%
2009 17.2% 35.0% 5.4%
Source: URA, HDB, Straits Times, PropertyGuru, Daiwa Source: HDB, Daiwa
Mixed development Looking ahead, management cited its preference towards mixed development sites. sites preferred in CapitaLand has an upcoming integrated development along Cairnhill Road comprising Singapore residential units, and its second Ascott-branded serviced residence in Singapore. One tender site that could fit the group’s criteria is a 247,000 sq ft land parcel along Holland Road in the URA’s land sales reserve list. The mixed development has residential (~570 homes), retail (145,000 sq ft) and commercial components.
Homes at the most affordable level since 2004 for the CCR and RCR Home prices are 15.1x One argument to maintain a status-quo on cooling measures would be from an affordability and 9.8x the median perspective. From an income-multiple stand-point, home prices in the CCR (15.1x) and household incomes in RCR (9.8x) regions are at their most affordable point since 2004, in our view. Income CCR and RCR regions, multiples in the OCR region (9.5x) are at their lowest since 2009. This is due to the income the lowest since 2004 levels rising faster than home prices in the former 2 regions, but slower than the latter.
Since peaking in 3Q13, private residential property prices have seen gradual declines of 7- 9% across all regions. Total growth of monthly median income have outstripped home price increases in the CCR and RCR regions since 1Q14 and 1Q13, respectively, while prices in the OCR region have come down since the peak in 3Q13. We think that this bodes well for the Ministry of National Development’s commitment “to provide a home for all Singaporeans by delivering affordable and quality public housing solutions”, as stated in its corporate handbook, hence, lowering the probability of an adjustment in cooling measures.
Monthly median income vs median private residential prices Annual median household income multiples of private residential properties 219 (x) (SGD) 25 120,000 199 100,000 179 20 80,000 159 15 139 60,000 10 119 40,000 5 99 20,000
0 0
2006Q1 2007Q3 2012Q3 2004Q3 2005Q1 2005Q3 2006Q3 2007Q1 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2004Q1 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Median Income CCR RCR OCR Income (RHS) CCR RCR OCR
Source: CEIC, Realis, URA, Daiwa estimates Source: CEIC, Realis, URA, Daiwa estimates Note: 2004Q1 base year = 100
Retail rents and occupancy to moderate as supply slows
Retail PPI and rentals The headlines for consumer spending in Singapore have not been encouraging, with the falling while vacancy retail sales index (excl. motor vehicles) down 4.6% YoY for October 2015. The PPI for rising retail space has trended downwards since peaking in 4Q14 while rents also fell. Vacancy rates for both central and outside the central regions have been on an upward trend, expanding from 5.3% and 2.7% in 4Q13 to 8% and 5.5% in 4Q15. The median rent on retail space has declined by 2.8-4.9% in 2015.
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CapitaLand (CAPL SP): 26 February 2016
We expect occupancy and rental rates to stabilise going forward as supply moderates in Occupancy and rental the next few years. According to estimates by Jones Lang Lasalle, new annual retail rates to stabilise moving forward as supply in 2016-17 is expected to be markedly lower than the 2013-15 period, before supply moderates spiking in 2018. However, we note that 2018’s major developments are located in potentially underserved suburban areas, such as Yishun (Northpoint City), Changi (Jewel @ Changi) and Paya Lebar (Paya Lebar Mixed Development).
Property Price Index of retail space Median rentals of retail space (%) (SGD psm) 135 4 130 120 130 3 110 125 2 100 120 90 1 80 115 70 0 110 60
105 -1 50
2011Q1 2012Q2 2013Q3 2011Q2 2011Q3 2011Q4 2012Q1 2012Q3 2012Q4 2013Q1 2013Q2 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4
2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 Index QoQ change (%) Orchard Outside Central Area Rest of City Area
Source: Realis, URA, Daiwa Source: Realis, URA, Daiwa
Vacancy rate of retail space Retail supply by segment (%) ('000 sq ft) 9 2,000 8 1,800 7 1,600 6 1,400 5 1,200 1203 4 1,000 3 996 800 694 1433 2 335 600 1 400 0 627 585 200 441 374 120
0 57 71
2011Q4 2013Q1 2011Q2 2011Q3 2012Q1 2012Q2 2012Q3 2012Q4 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2011Q1 2013 2014 2015 2016 2017 2018 Outside central region Central region Prime Suburban
Source: Realis, URA, Daiwa Source: JLL, Daiwa
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CapitaLand (CAPL SP): 26 February 2016
Upcoming retail supply JLL estimates 2.6m sq ft Project Location Retail NLA (’000 sq ft) Developer of new retail space will 2016 South Beach Bugis 60 South Beach Consortium Pte Ltd be realised in 2016-18 Hillion Retail Bukit Panjang 168 Sim Lian The Centrepoint Orchard 71 Frasers Centrepoint Malls Duo Galleria Bugis 54 M+S Pte Ltd Tiong Bahru Plaza Tiong Bahru 167 AsiaMalls Management Pte Ltd The Heart (in Marina One) Marina Bay 140 Khazanah Nasional Bhd, Temasek GuocoTower Tanjong Pagar 100 Guocoland Downtown Gallery Tanjong Pagar 160 DBS Sub-total 921 2017 Robinson Tower Raffles Place 57 Tuan Sing Holdings Junction Nine Yishun 55 CEL NeWest West Coast 64 Oxley Viva Pte Ltd Sub-total 177 2018 Paya Lebar Mixed Development Paya Lebar 450 Lend Lease Northpoint City Yishun 290 North Gem Development Pte Ltd Jewel @ Changi Changi 576 Changi Airport Group (S) Pte Ltd The Midtown Serangoon 67 Oxley-Lian Beng Pte Ltd City Gate Bugis 71 Bayfront Ventures Pte Ltd Woods Square Woodlands 50 Far East Sub-total 1,504 Grand total 2,602
Source: JLL, Daiwa
Pressure on office rents in the face of looming supply Office rents under We look for rental declines of 3-11% in 2016-17E, in view of the upcoming significant pressure in view of supply of office space, before a minor recovery in 2018E as the market absorbs the supply significant upcoming and vacancy rates moderate. In 2016E alone, we expect about 3m sq ft of new supply with supply the opening of Marine One, Guoco Tower and 5 Shenton Way.
The median price for office space in the central area recorded its first QoQ decline in 4Q15, while that for the fringe area has tapered off since hitting a peak in 4Q14. On the rental side, both category 1 and 2 office space saw 3 consecutive quarters of QoQ decline in 2Q-4Q15. We expect further weakness both in terms of prices and rents due to the in- coming office supply in 2016-18.
We expect supply of 5.9m sq ft in 2016-18, or 1.2m sq ft per year on average for the next 5 years, as no new significant office supply is expected in 2019-20. While average demand from 2010-15 is estimated at 1.05m sq ft per year, the figure falls to 0.5m sq ft if we only take into account 2013-15 demand. Hence, we expect downward pressure on rents and prices in the mid-term.
Singapore office: core assumptions Singapore office Unit 2011 2012 2013 2014 2015 2016E 2017E 2018E Supply (private downtown core) m sq ft 2.20 0.60 0.51 0.50 0.11 3.16 0.40 0.53 Demand (private downtown core) m sq ft 1.77 1.47 0.86 0.37 0.47 0.90 0.90 0.90 Vacancy URA downtown core (yr end) % 13.9 11.0 9.8 10.0 8.9 14.2 12.8 11.6 Vacancy JLL CBD core avg (yr end) % 7.8 7.3 6.0 5.7 4.8 10.1 8.6 7.5 Rents CBD prime grade-A rents (4Q) SGD/sq ft/mth 11.14 9.74 10.51 12.05 10.38 9.82 9.62 9.92 YoY change % 9.1 (12.5) 7.9 14.7 (13.9) (5.4) (2.0) 3.0 CBD prime grade-A rents (annual avg) SGD/sq ft/mth 11.41 10.16 10.09 11.63 11.17 9.98 9.66 9.72 YoY change % 27.2 (10.9) (0.7) 15.3 (4.0) (10.6) (3.2) 0.6 Capital values (end of year) Prime grade-A office (JLL) SGD/sq ft 2,430 2,480 2,670 2,705 2,570 2,421 2,373 2,412 YoY change % 10.5 2.1 7.7 1.3 (5.0) (5.8) (2.0) 1.6
Source: Jones Lang LaSalle, URA, Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
Median price of office space in central areas Median price of office space in fringe areas (SGD psm) (%) (SGD psm) (%) 16,000 20 16,000 20 14,000 15 14,000 15 12,000 10 12,000 10 10,000 10,000 5 5 8,000 8,000 0 0 6,000 6,000 -5 4,000 -5 4,000 -10 2,000 -10 2,000 -15
0 -15 0 -20
1991Q2 1996Q2 2001Q2 2006Q2 2011Q2 1990Q1 1992Q3 1993Q4 1995Q1 1997Q3 1998Q4 2000Q1 2002Q3 2003Q4 2005Q1 2007Q3 2008Q4 2010Q1 2012Q3 2013Q4 2015Q1
1990Q1 1991Q2 1992Q3 1993Q4 1995Q1 1996Q2 1997Q3 1998Q4 2000Q1 2001Q2 2002Q3 2003Q4 2005Q1 2006Q2 2007Q3 2008Q4 2010Q1 2011Q2 2012Q3 2013Q4 2015Q1 S$ psm QoQ change (%) S$ psm QoQ change (%)
Source: Realis, URA, Daiwa Source: Realis, URA, Daiwa
Median rentals of office space Vacancy rate of office space (SGD psm) (%) 180 25 160 140 20 120 15 100 80 10 60 40 5 20
0 0
2005Q1 2008Q1 2004Q1 2004Q3 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3
2007Q3 2014Q1 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q3 2015Q1 2015Q3 Category 1 Category 2 Category 1 Category 2
Source: Realis, URA, Daiwa: Source: Realis, URA, Daiwa Note: Category 1 refers to office buildings located in core business areas which are relatively modern, command relatively high rentals and have large GFA. Category 2 refers the remaining office buildings not included in Category 1.
Upcoming office supply Pipeline of significant upcoming commercial developments (m sq ft) NLA Expected 3.5 Property Location (sq ft m) Completion Marina One Marina Bay 1.88 2016 3.0 5 Shenton Way Shenton Way 0.28 2016 2.5 Guoco Tower Tanjong Pagar 0.89 2016 2.0 DUO Tower Bugis 0.69 2017 1.5 Robinson Towers Shenton Way 0.16 2017 Frasers Tower Shenton Way 0.66 2018 1.0 Paya Lebar Central (Lend Lease) Paya Lebar 0.82 2018 0.5 Woods Square Woodlands 0.54 2018
0.0 2010 2011 2012 2013 2014 1H15 2H15E 2016E 2017E 2018E Net Supply Net Demand Average demand (2010-14) Average demand (2013-15)
Source: CBRE, various news sources, company news releases, Daiwa forecasts Source: Various news sources, company news releases, Daiwa estimates
Demand for office space could be further hampered by a lukewarm job market. Singapore’s employment outlook for 1Q16, while still positive, is at its lowest since 3Q09, according to the Manpower Employment Outlook Survey. Manpower measures the outlook using a term known as Net Employment Outlook (NEO), which is the percentage point difference between employers looking to increase total employment and those expecting it to fall. The NEO for 1Q16 came in at +11%, on a seasonally-adjusted basis.
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CapitaLand (CAPL SP): 26 February 2016
Singapore employment outlook While still positive, the (%) 1Q16 employment 25 outlook is the lowest 20 since 3Q09 15
10
5
0
1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 Net employment outlook Seasonally adjusted outlook
Source: Manpower Group
Given potential downward pressure on rental rates and occupancies with the looming office space supply coming online in 2016-18E, we are positive on CapitaLand’s decision to walk away from the purchase of Asia Square Tower 1, as we think the building’s lofty valuation of SGD3.5-4.2bn (SGD2,800-3,400/sq ft) is unjustifiable. Management said negotiations broke down as the deal did not satisfy its investment requirements.
Focus on tier-1 and upper tier-2 cities in China NPI growth supported We expect the NPI growth for CapitaLand’s retail malls to be supported by continued by positive rental positive rental reversions and the opening of new malls over 2016-18E. The malls it reversions and opening opened in 2010-12 saw 21-51% NPI growth for 2014. With about 95-100% of its China of new malls malls’ tenant space leased on a fixed basis, we expect CapitaLand’s rental income to be strong in 2016-18E. Positive share-price catalysts could come in the form of: 1) landbank replenishment at reasonable prices and in line with the company’s geographical focus, and 2) divestment of shopping malls to its listed real-estate investment trust, CapitaLand Retail China Trust (CRCT) (CRCT SP, SGD1.40, Hold [3]).
Geographically, CapitaLand intends to deepen its presence in tier-1 and upper tier-2 cities, which it groups into 5 clusters as follows: 1) Beijing-Tianjin, 2) Shanghai-Ningbo- Hangzhou-Suzhou, 3) Guangdong-Shenzhen, 4) Wuhan, and 5) Chengdu-Chongqing. The rationale behind this strategy to focus on tier-1 and upper tier-2 cities is due to: 1) higher spending power, and 2) the urbanisation trend driving population growth in those cities. This rationale implies potential divestments in other tier-2/tier-3 cities. Properties in those cities accounted for 18% of CapitaLand’s China assets (or ~8% of overall assets) as of 30 June 2015.
China GDP per capita by city in 2014 Higher GDP per capita in (CNY) tier-1 and upper tier-2 160,000 140,000 cities vs. overall China 120,000 Average for CapitaLand’s target cities: RMB100,413 100,000 80,000 60,000 40,000 20,000
0
China
Tianjin
Beijing
Ningbo
Wuhan*
Suzhou*
Chengdu
Shanghai
Shenzhen
Hangzhou
Chongqing Guangzhou*
Source: CEIC, China National Bureau of Statistics *: Based on 2013’s data
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CapitaLand (CAPL SP): 26 February 2016
China's urbanisation rate and population growth rate Tier-1 cities sees (%) (%) continued population 60 12 10 influx from rural cities 50 8 40 6 30 4 2 20 0 10 -2
0 -4
2014 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Urbanisation rate YoY growth of overall population (RHS) YoY growth of population in tier-1 cities (RHS)
Source: CEIC, World Bank, China National Bureau of Statistics, Daiwa Note: Tier-1 cities refer to Beijing, Shanghai and Guangdong
The move should allow CapitaLand’s management to focus its manpower on those 11 cities. Also, it should bring benefits on the cost front as the company should realise greater economies of scale, since currently it may have small teams based in lower tier-2 and tier- 3 cities that cover only 1 or 2 properties. As of 30 June 2015, assets in the 11 cities make up about 82% of China’s property value.
CapitaLand to focus on By property type, CapitaLand aims to focus on integrated and mixed-use projects (retail, integrated office, residential and serviced residence) in China. Management said the move will allow it developments going to offer an attractive value proposition by leveraging the expertise of each of its business forward … units. It also notes challenges in attracting tenants for standalone properties (pure retail or commercial).
… with 10 Looking ahead, CapitaLand has 10 malls/integrated developments scheduled to open in malls/integrated 2016-18, with a total GFA of ~2.6b sq m (including Raffles City Changning’s office tower 3, developments slated to which opened in 2015). In the long term, we believe China could make up 50% of the open in 2016-18 group’s assets (up from 47% as of 31 December 2015). Management said it aims to realise a 10-12% net margin for its development projects in China.
CapitaLand: China property value by cities as of 31 December CapitaLand: 5 city clusters in China 2015 Tier 3 7% Tier 1 Beijing Other tier 2 15% 7%
Tier 1 Shanghai Upper tier 2 29% 33% Tier 1 Guangzhou and Shenzhen 9%
Source: Company Source: Company
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: China assets breakdown by business segment (as CapitaLand: development pipeline in China of 31 December 2015) Serviced Property Type City GFA (sqm) Est. opening residence Raffles City Changning ID Changning 261,011 2015-17 9% CapitaMall Xinduxin Mall Qingdao 104,034 2016 Shopping malls Residential and CapitaMall Tiangongyuan Mall Beijing 140,708 2016 16% office strata CapitaMall Westgate ID Wuhan 245,000 2016 37% Raffles City Hangzhou ID Hangzhou 296,336 2016-17 Hanzhonglu Commercial ID Shanghai 75,000 2017 LuOne ID Shanghai 131,303 2017 onwards Raffles City Shenzhen ID Shenzhen 200,980 2017 Commercial and Suzhou Center Mall ID Suzhou 364,469 2017 onwards integrated developments Raffles City Chongqing ID Chongqing 817,000 2018-19 38% Total 2,635,841
Source: Company Source: Company Note: ID = Integrated development
China residential CapitaLand sold 90% more residential units in 2015 than in 2014. By sales value, its residential sales in 2015 were double those of 2014 — the company’s strongest showing in the past 4 years. We believe that the China government’s cuts in interest rates and banks’ required reserve ratios played a role in these positive results.
CapitaLand: number of residential units sold in China CapitaLand: sales value of residential units sold in China 10,000 (CNY '000) 9,000 18,000 8,000 2910 16,000 7,000 1902 14,000 3837 6,000 12,000 2312 2422 5,000 1646 10,000 3750 1673 4,000 8,000 3566 2161 1909 3,000 1891 6,000 3288 1057 2764 1695 5660 2,000 4,000 2517 1631 1054 2068 1594 1,000 2249 2,000 2340 1371 759 1177 1306 2746 2183 0 0 796 1302 2012 2013 2014 2015 2012 2013 2014 2015 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Source: Company Source: Company
EBIT margins for China We estimate the EBIT margins for CapitaLand’s residential projects range from 10-30%, residential estimated at broadly based on the location of each project, with a tier-1 city offering a higher EBIT 10-30% margin. The 2 major expense items for development projects are land and construction costs. According to management, the construction cost depends on the complexity and type (bare shell vs. fully fit) of the project. According to Langdon Seah, the construction cost can reach CNY12,000 per sq m for a fully-fit, high-end apartment in a tier-1 city. We estimate that land cost as a percentage of the ASP can range from 17% to 67%, based on a sample of CapitaLand projects.
CapitaLand: ASPs and land cost for some projects CapitaLand: EBIT margin assumptions for China residential projects Project City ASP (CNY per sq m) Land cost as % of ASP Tier Cities EBIT margin assumption Summit Era Ningbo 15,622 61% Tier-1 Shanghai 25% to 30% Riverfront Mansion Hangzhou 29,356 54% Beijing International Trade Centre Tianjin 19,447 53% The Pinnacle Shanghai 34,998 43% Guangdong The Lakeside Wuhan 4,766 35% Shenzhen Lotus Mansion Shanghai 53,700 28% Tier-2 Tianjin 18% to 20% Chengdu Century Park Chengdu 11,073 28% Ningbo New Horizon Shanghai 12,279 22% Hangzhou The Paragon Shanghai 127,701 21% Suzhou Vista Garden Guangzhou 8,135 20% Wuhan The Loft Chengdu 8,640 17% The Metropolis Kunshan 13,268 14% Chengdu Chongqing Other tier-2 / tier-3 - 10% to 14%
Source: Company filings, various news sources, Daiwa estimates Source: Company, Daiwa estimates Note: ASP (average selling price) based on most recent quarter with transactions
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CapitaLand (CAPL SP): 26 February 2016
Raffles City portfolio and shopping malls CapitaLand’s stabilised assets (Raffles City Shanghai and Beijing) offer annualised NPI yields of 7-8%, based on its results for 2015. Both properties have had close to full occupancy rates since 2010. While Raffles City Shanghai continued to see positive NPI growth of 2.8% YoY for 2015, Raffles City Beijing saw a slight decline of 1.2% due to a loss of income during a transitional period where its office component faced a change in tenant.
Meanwhile, the company’s stabilising assets (Raffles City Chengdu and Ningbo) have continued to see increases in their occupancy rates since opening in 2012, with Raffles City Ningbo now close to being fully leased. In 2015, Raffles City Chengdu recorded 32% NPI YoY growth while Raffles City Ningbo was hampered by a change in its tenant mix, as well as higher property tax and incentives offered to attract and retain quality tenants, which led to a 1.5% YoY drop in its NPI. Both properties have NPI yields of about 3%. At Raffles City Changning, the newly opened office tower 3 has an occupancy rate of 82% as of end-2015.
About 63% of CapitaLand’s operating malls in China are located in tier-1 and tier-2 cities. The malls recorded 5-9% YoY growth in tenants’ sales and 3-14% YoY yield improvements in 2015. As a result, the group’s NPI yield on cost improved across all city tiers last year.
CapitaLand: Raffles City portfolio in China Stabilised Raffles City Property Year opened Total GFA Effective stake Net property income (CNYm; 100% basis) NPI Yield on valuation properties in China offer (sqm) (%) 2015 2014 YoY Growth (100% basis) Stabilised assets 7-8% NPI yield on Raffles City Shanghai 2003 ~139,000 30.7 517 503 2.8% 7-8% valuation Raffles City Beijing 2009 ~111,000 55.0 251 254 (1.2%)* Stabilising assets Raffles City Chengdu 2012 ~211,000 55.0 136 103 32.0% ~3% Raffles City Ningbo 2012 ~82,000 55.0 64 65 (1.5%)**
Source: Company Note: NPI excludes strata/trading components, * = fall in number of office tenants, ** = undergoing change in tenant mix and higher property tax
CapitaLand: occupancy rates for operational Raffles City CapitaLand: NPI yields of operational malls in China assets in China Properties 2009 2010 2011 2012 2013 2014 2015 City tier No. of Cost NPI yield on cost Yield Tenants’ sales Raffles City Shanghai malls (100% basis) (100% basis) improvement growth - Retail 100% 100% 100% 100% 100% 100% 100% (CNYbn) 2015 2014 2015 vs. 2014 2015 vs. 2014 - Office 93% 96% 100% 100% 98% 100% 100% Tier 1 13 27.3 8.1% 7.8% +3.2% +8.5% Raffles City Beijing Tier 2 17 15.3 6.1% 5.4% +13.9% +6.8% - Retail 94% 100% 100% 100% 100% 100% 100% Others 18 4.6 7.0% 6.4% +8.3% +4.9%
- Office 44% 99% 100% 98% 100% 98% 99% Raffles City Chengdu - Retail - - - 98% 98% 98% 99% - Office Tower 1 - - - - 4% 47% 69% - Office Tower 2 - - - 42% 61% 79% 90% Raffles City Ningbo - Retail - - - 82% 97% 94% 98% - Office - - - 21% 78% 96% 92% Raffles City Changning - Office Tower 3 ------82%
Source: Company Source: Company Note: NPI yield is calculated on a median basis; excludes CapitaMall Minzhongleyuan, CapitaMall Shawan, CapitaMall Tianfu and CapitaMall Kunshan
Landbank replenishment through JVs Landbank We expect CapitaLand to complete a steady flow of residential developments in 2016-19, replenishment with 2018 likely to be a bumper year in this respect. Beyond that, the company has 5 exercises expected in remaining projects due to expire in 2021, 2022 and 2024. This represents a concentration 2016-18 risk that can be mitigated by acquiring more land for other developments. In October 2015, the group acquired a land plot in West Guangzhou with a GFA of 97,649 sqm known as Project Datansha. Pre-construction for the project commenced at end-2015, and main construction is due to begin in 1Q16, with the first phase of units expected to be launch- ready in 4Q16, in line with management’s goal of time-to-market from land acquisition to launch of units in 9 months.
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: estimated latest completion of un-launched residential units as of 31 December 2015 Land bank 30,000 replenishment likely via 25,000 JVs and M&As 20,000
15,000
10,000
5,000
0 2016 2017 2018 2019 2020 2021 2022 2023 2024
Source: Company, Daiwa estimates
In order to replenish its landbank, CapitaLand said it has a preference for joint ventures or M&A to acquire new land, instead of bidding through auctions. The reason is the high land cost in recent tender rounds.
Three developers In November 2015, 2 China developers – China Resources Land and China Merchants walked away from Land – backed out of buying a plot in Beijing they had won at auction after the final price tenders won after final exceeded their budgets. In the same month, Country Garden Holdings did not complete its price exceeded their acquisition of 2 Beijing sites after final prices surpassed its agreed ceiling by as much as budgets 18%. In both cases, the winning bid was about 50% higher than the initial asking price.
We think developers’ walking away from transactions deemed too expensive could help stabilise margins, which declined between 2011 and 1H15. The average operating margin of the top-10 listed-China developers (by market capitalisation) narrowed from 30.1% in 2011 to 21.3% in 1H15. The mean net margin attributable to shareholders also shrunk to 14.9%, from 21.6%, over the same period.
Comparison of CapitaLand and China developers’ margins Market cap Gross margin (%) Operating margin (%) Net income to common margin (%) Company Code (SGD mn) 2010 2011 2012 2013 2014 1H15 2010 2011 2012 2013 2014 1H15 2010 2011 2012 2013 2014 1H15 China Vanke 2202 HK Equity 57,269 33.3 36.1 32.4 25.1 25.1 26.5 25.8 28.4 26.3 19.5 18.9 18.4 16.2 14.2 13.0 12.2 11.4 10.2 COLI 688 HK Equity 47,462 40.1 40.3 38.3 32.5 32.7 32.2 36.5 37.0 35.7 29.4 30.6 29.6 27.9 30.1 29.0 27.9 23.1 25.2 Wanda 3699 HK Equity 36,814 N/A 47.9 51.2 43.0 38.8 44.3 N/A 38.2 42.1 36.2 26.0 31.3 N/A 39.0 46.2 28.3 24.9 16.8 CR Land 1109 HK Equity 27,990 39.5 39.6 37.6 28.2 30.6 32.2 33.5 32.3 30.2 25.7 25.3 26.1 23.3 22.7 23.8 23.1 16.6 17.4 Evergrande 3333 HK Equity 15,768 29.2 33.3 27.9 29.5 28.5 28.4 22.7 25.1 18.2 21.2 16.0 15.2 16.6 18.3 14.1 13.5 11.3 12.1 CapitaLand CAPL SP Equity 13,806 39.6 35.5 37.2 35.2 35.2 38.9 46.3 38.4 33.2 36.7 36.6 37.3 42.1 35.0 28.2 23.9 29.6 32.1 Gemdale 600383 C1 Equity 13,296 31.3 31.8 25.4 20.4 22.0 21.5 23.6 23.2 18.3 12.5 15.7 16.2 15.3 14.0 12.4 11.3 9.6 7.0 Country Garden 2007 HK Equity 12,684 32.4 34.5 36.6 30.3 26.1 23.2 26.8 27.5 27.8 20.2 17.6 14.9 16.6 16.7 16.4 13.6 12.1 10.4 Longfor 960 HK Equity 11,518 33.8 40.5 40.1 27.8 26.5 26.5 28.9 35.0 34.6 23.9 22.2 21.1 27.4 26.3 22.6 19.4 16.4 22.8 Shimao 813 HK Equity 8,838 36.6 38.4 33.5 35.3 32.5 30.7 30.0 31.0 24.3 26.6 25.4 24.0 21.4 22.0 20.1 17.8 14.5 12.2 Sino-Ocean 3377 HK Equity 6,984 30.1 31.5 26.9 24.3 21.0 20.3 23.8 23.6 20.6 19.8 16.4 16.5 17.8 12.9 13.2 13.1 11.8 14.5 R&F 2777 HK Equity 5,593 37.7 41.7 40.8 39.2 35.5 29.5 31.5 34.6 34.3 32.8 27.0 22.1 17.7 17.7 18.1 21.0 15.0 8.1 Jinmao 817 HK Equity 4,942 52.0 54.2 41.9 44.4 39.1 41.2 38.8 40.9 34.2 36.9 30.4 29.0 27.0 35.6 19.7 20.4 17.9 20.8 Sunac 1918 HK Equity 3,526 43.3 33.6 25.8 23.3 17.3 11.4 39.3 27.9 21.7 19.7 14.0 9.0 23.2 22.2 12.5 10.3 12.9 17.5 BJ North Star 588 HK Equity 3,523 31.8 49.4 39.8 45.8 44.4 43.7 20.0 31.6 22.9 29.7 28.0 28.1 19.8 29.5 12.1 14.5 12.5 13.2 Greentown 3900 HK Equity 3,181 30.5 33.7 30.3 30.3 25.4 23.8 16.5 25.5 25.2 22.7 17.2 15.1 13.7 11.7 13.7 16.9 6.5 4.8 KWG 1813 HK Equity 3,125 41.5 44.2 36.5 36.2 35.5 36.5 33.1 36.7 27.6 25.8 22.6 22.1 17.2 20.8 24.9 29.0 31.3 35.0 Agile 3383 HK Equity 3,092 45.8 53.8 41.6 35.6 32.4 29.6 38.4 46.0 34.1 27.5 25.5 22.9 29.1 17.9 16.7 13.6 11.2 5.6 Yuexiu 123 HK Equity 3,030 33.4 41.8 47.5 28.9 26.4 26.2 29.8 32.4 33.7 20.5 16.9 14.5 16.3 54.7 30.6 20.3 15.7 18.1 Joy City 207 HK Equity 2,932 17.3 16.4 57.8 53.9 59.4 58.9 -293.1 -696.3 43.7 34.0 34.1 31.8 -693.3 3373.7 20.7 45.8 29.3 26.8 COGO 400 HK Equity 2,677 N/A N/A N/A 8.4 7.8 8.0 N/A N/A N/A 4.9 3.9 4.5 N/A N/A N/A 3.4 2.8 3.9 Yanlord YLLG SP Equity 1,958 54.6 33.6 36.4 35.5 29.2 N/A 60.9 38.1 39.2 34.7 31.5 N/A 26.4 16.5 17.7 13.1 11.6 N/A Poly Property Group 119 HK Equity 1,662 40.9 39.5 30.4 23.4 19.8 17.0 28.7 28.5 22.7 15.7 12.6 9.0 21.6 19.7 12.7 9.5 3.3 1.4 Central China 832 HK Equity 681 34.2 38.8 35.4 34.1 33.6 27.9 25.7 32.4 26.4 22.5 23.1 17.5 12.1 10.1 13.0 14.8 9.6 8.2 Average of top 10 by market cap (excl. CAPL) 34.0 37.4 35.0 29.6 28.4 28.6 28.0 30.1 27.8 23.5 21.4 21.3 20.3 21.6 21.1 18.0 15.2 14.9 Average (excl. CAPL) 36.6 38.9 37.0 32.0 30.0 29.1 15.3 -0.9 29.3 24.5 21.8 19.9 -13.7 174.8 19.2 17.9 14.4 14.2
Source: Bloomberg
The group has obtained land via M&A previously and its purchase of a company, Orient Overseas Developments Limited (OODL), for SGD3.2bn in 2010, ranks as the largest company acquisition the firm has undertaken to date in China.
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CapitaLand (CAPL SP): 26 February 2016
OODL had a portfolio of 7 sites located in Shanghai, Kunshan and Tianjin. The move, which doubled CapitaLand’s China property assets to 2.8m sqm at that time, was seen as a complementary fit for the group’s strategy as it contained 3 residential projects, 2 sites with integrated development potential as well as 2 serviced residences in Shanghai. We note that most of the residential developments have sold well, with 90% of launched units sold in 3 projects. Land cost for the 3 projects ranged from 14-43% of ASP, or 15-47% of total expenses. This is favourable as land costs typically make up 40-50% of the total expenses for China residential projects.
However, not the entire portfolio has performed well, with the International Trade Centre in Tianjin being identified as a more challenging development. In 2015, the group took an impairment charge of SGD71.5m under CapitaLand China, with most of it derived from the residential component of the development. However, management said it does not expect to make further impairments on the project going forward. As of 31 December 2015, 48% of the residential units had been sold.
CapitaLand: Residential sites obtained through OODL purchase Land cost for sites from Total land Land cost Latest quarter's Land cost No. of No. of units % of launched cost* GFA per sqm sale price as % of ASP units launched units sold the OODL transaction Project City CNY (m) (sqm) CNY CNY are estimated at 14-53% International Tianjin 1,963 190,350 10,313 19,447 53% 1,305 1,305 48% of the ASP on a per sqm Trade Centre The Pinnacle Shanghai 1,569 104,800 14,970 34,998 43% 539 539 100% basis The Paragon Shanghai 3,929 145,500 27,003 127,701 21% 178 178 90% The Metropolis Kunshan 1,347 728,343 1,849 13,268 14% 5,777 3,272 97%
Source: Company, Daiwa estimates Note: *: Includes proceeds from sale of stake to third parties
What is our view of China’s physical property market? Our China property analyst, Jonas Kan, believes a rational adjustment of the China residential property sector is well under way, and expects it to continue into 2016. He expects a steady rise in ASPs in tier-1 cities (+4% in 2016E) and continued improvement in ASPs in tier-2 cities (+3%). For tier-3 cities, he expects overall ASPs to fall by 2-5% in 2016E as they clear inventories, and believes this will result in an improved industry environment.
Residential sales hit a According to data from China’s National Bureau of Statistics, residential sales in December record high of were strong and full-year residential sales reached a new high of CNY7.3tn in 2015. The CNY7.3tn in 2015 data also showed a 19.9% rise YoY in the average sale price of newly constructed property in tier-1 cities in December, with Shenzhen (+46.8%) being the standout. Price increases of 8.3-15.5% were seen in other tier-1 cities – Beijing, Shanghai and Guangzhou. Jonas expects the positive trend to continue into 2016 and spread to more lower-tier cities, where a few select cities, like Hangzhou (+5.6% YoY in ASP), did well in December. The average home price in the 70 cities monitored by China’s National Bureau of Statistics was CNY6,472 per sqm for 2015, up 9.1% YoY.
Rational adjustment Although sales figures remained strong, there was no meaningful rise in property process in residential construction and real estate investment in December 2015. Also, full-year 2015 sector under way construction figures showed 0.7-14.6% declines, while real estate investment inched up a mere 0.4%. Jonas thinks this situation signals that a rational adjustment process is taking place in the sector. With improved property sales, he expects overall inventory duration in the industry to continue to trend down. As residential new starts and construction were slow in 2015, the implication is that housing supply in 2016 would be lower and that housing demand/supply dynamics would be more balanced, in Jonas’s view. The reason behind the slow residential new starts and construction figures for 2015 was that many developers were quite conservative in acquiring land in 2014/1H15, as they looked to clear inventory before considering more aggressive land bank expansion again.
Jonas thinks overall inventory turnover will continue to go down gradually in all the cities as sales remain steady while inventory declines. However, he cautions that inventory levels
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CapitaLand (CAPL SP): 26 February 2016
and turnover in tier-3 cities could remain at a high level (despite the gradual decline) and that this would be the main reason for home prices to stay weak in these cities.
Steady or gradual pick- Jonas believes a rational adjustment is underpinned by a few factors: 1) a large portion of up in home sales likely upgraders’ housing demand being satisfied in June-July 2015, 2) buyers becoming more going forward rational in home purchases and not likely to jump into the market unless huge price discounts are offered, and 3) the higher penetration rate for owning homes among Chinese people compared to before. He thinks steady home sales or a gradual sales pick-up would likely be the trend going forward unless developers offer deep discounts, which is not likely in the near term.
Although Jonas thinks the industry environment could improve in 2016 vs. 2014-15 with government policies turning more supportive, he does not believe a pick-up in housing demand in China would be comparable to the past, given that many people have already bought their homes in the past 10 years.
Favourable policies On 26 October 2015, China announced a 25bp cut in interest rates and a 50bp cut in RRR. should have a positive Jonas believes the move will have a positive impact on the China residential property impact on the market as it moves towards a steady and sustainable growth rate. This was the fifth cut in residential property interest rates and second drop in the RRR in 2015 alone. On 2 February 2016, the market People’s Bank of China (PBOC) and the China Banking Regulatory Commission (CBRC) announced the lowering of the downpayment requirement for commercial mortgage loans in cities not subject to home purchase restrictions. The minimum downpayment was subsequently lowered to 20%/30% (from 25%/40% previously) for first/second homes.
China property: evolving phases (CNY bn) Phase 3: the state allows more market 8,000 A welfare Phase 1: gradually became a Phase 2: the state made constant administrative forces to come into play sector sizable and commerical industry measures to intervene 7,000
6,000 CAGR = 26% YoY during 2004-2013 5,000
4,000
3,000 CAGR =31% YoY during 1998-2004 2,000
1,000
0 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Government losing A few players which have achieved scale A few players managed to acheive over CNY100bn in contract Financially stronger and money badly in economies started having over CNY500m sales and over CNY10bn in net profit. better managed players can welfare housing. in net profit since about 2003. achieve sustained rise in profit and market share.
Source: CEIC, Daiwa
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CapitaLand (CAPL SP): 26 February 2016
Major policies related to the China Property Sector Date Government body/Province/City Policy 15-Jan-15 Ministry of Land & Resources (MLR) The new land supply for development nationwide in 2015 is reduced further from the 2014 levels. 28-Jan-15 Ministry of Housing and Urban-Rural Development Workers who have paid the Housing Provident Fund (HPF) for 3 months and together with their spouses do not own a housing unit (MOHURD), Ministry of Finance (MoF), People's and are currently renting a unit are allowed to withdraw each other's HPF to pay for rent. Bank of China (PBOC) 28-Feb-15 PBOC The one-year benchmark deposit and lending rates are lowered by 0.25pp to 2.50% and 5.35%, respectively. Meanwhile, the above 5-year benchmark lending rate is lowered to 5.90%. 30-Mar-15 PBOC, MOHURD and China Banking Regulatory When home buyers with an existing mortgage on their first homes purchase second homes, the minimum downpayment ratio will Commission (CRBC) be lowered to 40%. For first homes purchased using HPF, the minimum downpayment requirement is lowered to 20%. For home buyers who own one home but have already paid off their mortgage and are looking to purchase their second homes using HPF, the minimum downpayment requirement is adjusted to 30%. 11-May-15 PBOC An interest rate cut of 0.25pct on RMB loans and deposits is announced. Subsequently, the above 5-year benchmark lending rate is lowered to 5.65% from 5.90%. 27-Jun-15 PBOC Another interest rate cut of 0.25pp is announced. The above 5-year benchmark lending rate is lowered to 5.40% from 5.65%. 26-Aug-15 PBOC The PBOC again cuts the benchmark interest rate by 0.25pp. Hence, the above 5-year benchmark lending rate is lowered to 5.15%. Also, the RRR is lowered by 0.5pp from 6 September 2015 onwards. 27-Aug-15 MOHURD, Ministry of Commerce, NDRC, PBOC, Home purchase restrictions (HPR) on overseas institutions and foreign buyers are removed nationwide besides the cities with HPR SAIC, SAFE still in place. 31-Aug-15 MOHURD, Ministry of Finance, PBOC The minimum downpayment for buyers who use HPF to purchase second homes is lowered to 20% from 30% as long as the buyers have paid off their previous mortgage. The 4 tier-1 cities can decide on their own whether to follow the move or not. 30-Sep-15 PBOC, CBRC The downpayment requirement for first home commercial mortgage loans is lowered to 25% from the previous 30% in cities not subject to Household Purchase Restrictions (HPR). 23-Oct-15 PBOC The benchmark interest rate is cut by another 0.25pp and the above 5-year benchmark lending rate is lowered to 4.90%. The RRR is lowered by 0.5pp to 17.0%. 21-Dec-15 Central Committee of the Communist Party, State One of the major tasks in 2016 is to solve the housing inventory problem. The main measures to do so include: 1) speeding up the Council urbanisation of rural workers, 2) allowing the household registration of non-locals in where they work, 3) satisfying the housing demand from new residents and allow non-locals to apply for public-rental housing, 4) encouraging individuals and institutional investors to purchase housing inventory, 5) encouraging developers to reasonably lower project ASPs, 6) promoting M&A within the property industry, and 7) cancelling obsolete restrictive property measures. 1-Feb-16 PBOC, CBRC The downpayment requirement for first home commercial mortgage loans is lowered to 20% from 25% in cities not subject to the HPR. For families that already own one home and have not paid off the mortgage but want to purchase another home for upgrading purposes, the downpayment requirement is lowered to 30%.
Source: Government bodies, Daiwa
Daiwa’s home-price forecasts for 2016 and 2017 (YoY) 2015 2016E 2017E Tier-1 cities - Established city centres +8% +8% - One hour travel distance from city centre +3% +5% - Suburban areas and new districts +0-5% +0-5% - Overall +20% +4% +4% Tier-2 cities - Established city centres +0-5% +5% - 30 minutes to 1 hour travel distance from city centre Flat Flat - Suburban areas and new districts Flat to -3% Flat to -3% - Overall +1% +3% +3% Tier-3 cities - Established city centres Flat to -5% +3% - 30 minutes travel distance from city centre Flat to -10% Flat - Suburban areas and new districts -5-15% -5-10% - Overall -2% -2-5% Flat Nationwide average +9% +2% +3%
Source: NBS, Daiwa forecasts Note: The overall home prices for the tier-2 and tier-3 cities are for our tracked tier-2 cities and tier-3 cities.
China Property Sector: major indicators 2013 YoY 2014 YoY 2015 YoY 2016E YoY 2017E YoY Residential sales volume (m sqm) 1,157.2 17.5% 1,051.8 -9.1% 1,124.1 6.9% 1,214.0 8.0% 1,262.5 4.0% Residential sales value (CNYbn) 6,769.5 26.6% 6,239.6 -7.8% 7,275.3 16.6% 8,014.5 10.2% 8,585.1 7.1% Residential home price (CNY/sqm) 5,849.8 7.7% 5,933.0 1.4% 6,472.3 9.1% 6,601.8 2.0% 6,799.8 3.0% Residential new starts (m sqm) 1,458.5 11.6% 1,248.8 -14.4% 1,066.5 -14.6% 1,087.8 2.0% 1,142.2 5.0% Residential real estate investment (CNYbn) 5,895.1 19.4% 6,435.2 9.2% 6,459.5 0.4% 6,588.7 2.0% 6,786.4 3.0%
Source: CEIC, Daiwa forecasts
China residential construction and investment Nov-15 YoY Dec-15 YoY 11M15 YoY 12M15 YoY Residential new-start area (m sqm) 93.2 -20.7% 95.7 -6.5% 970.8 -15.3% 1,066.5 -14.6% Residential under-construction area (m sqm) 107.1 -18.0% 82.2 -19.2% 5,033.5 -0.3% 5,115.7 -0.7% Residential completed area (m sqm) 110.2 29.8% 202.2 -14.4% 535.5 -6.4% 737.8 -8.8% Residential sales amount (m sqm) 123.0 7.8% 164.0 1.4% 960.1 7.9% 1,124.1 6.9% Residential sales value (CNYbn) 782.9 18.0% 1,022.1 8.9% 6,253.2 18.0% 7,275.3 16.6% Residential real estate investment (CNYbn) 591.9 -4.7% 552.6 -2.7% 5,906.9 0.7% 6,459.5 0.4%
Source: China National Bureau of Statistics
33
CapitaLand (CAPL SP): 26 February 2016
Monthly mortgage payment on first homes before and after interest rate cut on 26 October 2015 Home sales value Before interest rate cut After interest rate cut (CNY) Tier-1 cities Tier-2 cities Tier-1 cities Tier-2 cities 1m 4,048 4,226 3,953 4,131 2m 8,097 8,453 7,905 8,261 5m 20,242 21,132 19,763 20,653 10m 40,484 42,264 39,527 41,305
Source: PBOC, Daiwa Note: Assumption 1: 30% downpayment requirement in tier-1 cities and 25% downpayment in tier-2 cities Assumption 2: 5% mortgage rate discount in tier-1 cities and 10% mortgage rate discount in tier-2 cities
Home mortgage down payment requirements Cities with HPR Cities with HPR Jan-2015 Now Jan-2015 Now First homes 30% 30% 30% 20% Second homes 70% 50-60% 60% 30% Third homes or more Mortgage suspended Mortgage suspended Mortgage suspended Depends, but >30%
Source: PBOC, CBRC, News reports, Daiwa
Interest rate (above 5-year benchmark lending rate) and RRR trend (%) (%) 8 22
6 20
4 18
2 16
0 14 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12 Jul 12 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 Interest rate RRR (RHS)
Source: PBOC, Daiwa
The Ascott Limited: on track for 80,000 units by 2020E We expect CapitaLand subsidiary The Ascott Limited’s (Ascott) fee-based income and economies of scale to improve as it grows its management contracts, monetise its assets by injecting mature properties into its REIT platform and acquire new properties from third parties.
Ascott has over 43,000 Ascott is an international serviced residence owner-operator with about 43,000 units in units in more than 270 more than 270 properties, as of 31 December 2015. About 62% of its total units are properties operational with the remaining under development. China is now Ascott’s largest market with over 14,000 apartment units across 24 Chinese cities.
Ascott operates under 3 brands: 1) Ascott, 2) Citadines, and 3) Somerset, and manages Ascott Residence Trust (ART SP, SGD1.105, Outperform [2]) as well. About 60% of its units are under management contract.
Ascott Resident Trust’s (ART), the trust arm of Ascott, acquisition mandate is not limited to properties owned by Ascott. Since its listing in 2006, the trust has purchased SGD3.8bn worth of serviced residences. Notably, ART made its maiden entry into the US with an USD163.5m purchase of a hotel in New York’s Times Square in July 2015. These acquisitions helped Ascott surpass its 2015’s target of 40,000 units and keep it on track for 80,000 units by 2020.
34
CapitaLand (CAPL SP): 26 February 2016
Ascott: asset value by effective stake as of 31 December 2015 Ascott: total units as of 31 December 2015 Under development, 448, 26% Under development, 16275, 38%
Operational, 26702, 62%
Operational, 1300, 74%
Source: Company Source: Company
Ascott: geographical breakdown of total units as of 31 Ascott: target number of units by 2020 December 2015 16,000 90,000 80000 14,000 80,000 72000 12,000 70,000 64000 10,000 60,000 56000 8,000 48000 50,000 42977 6,000 39381 40,000 34262 4,000 30,000 2,000 20,000 0 Singapore SEA, China North Asia Europe USA Gulf & India 10,000 Australia 0 Operational Under development 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Source: Company, Daiwa estimates Source: Company, Daiwa forecasts
What’s next for ASEAN? Apart from its home country and China, CapitaLand aims for Singapore to be the hub of its investments in the ASEAN region, particularly in the residential segment. It has identified Vietnam, Indonesia and Malaysia as the 3 countries to focus on in the near term, with an emphasis on the former.
Vietnam’s property market is currently recovering from a bubble that burst 4 years ago, buoyed by recent favourable changes in housing policies, in our view. The recovery has not gone unnoticed. Apart from CapitaLand, other foreign developers such as Keppel Land, Amata Corp Pcl and Nishi Nippon Railroad have expanded in the market.
CapitaLand’s residential projects are concentrated in Hanoi and Ho Chi Minh City, Vietnam’s capital and business hub, respectively. This is in line with its overall strategy to focus on tier-1 cities within each country. It also has 6 serviced residences in the country, with 5 located in the 2 cities.
Encouraging the take- In August 2015, CapitaLand launched 562 units across 2 residential developments in Ho up rate for residential Chi Minh – Vista Verde and The Krista. About 75% of the former has been sold as of 31 projects launched in December 2015 while 84% of the latter has transacted. Management said that a change in August 2015 regulations may have played a role in improving the attractiveness of real-estate investments in Vietnam.
According to management, residential projects in Vietnam offer superior profitability to its other markets with net margins of 15-17% vs. 12-14% (China) and 3-5% (Singapore). This is attributed largely to its lower land cost (about 20-30% of total expenses) vs. Singapore (50-60%) and China (40-50%).
35
CapitaLand (CAPL SP): 26 February 2016
CapitaLand: residential projects launched in Vietnam CapitaLand: residential projects' net margins and land cost Total Units Units sold % of launched % Vietnam Singapore China Project units launched as of 31 Dec-15 units sold completed EBIT margin >20% 8-10% 18-20% Existing projects Net margin 15-17% 3-5% 10-12% The Vista 750 750 668 88% 100% Land cost as % of total expenses 20-30% 50-60% 40-50% Mulberry Lane 1,478 1,478 1,068 72% 100% ParcSpring 402 402 397 99% 100% Vista Verde 1,152 1,152 866 69% 38% New projects The Krista 344 344 296 84% 46% Seasons Avenue 1,300 531 310 51% 11%
Source: Company Source: Company, Daiwa estimates
CapitaLand has acquired land parcels and inked a JV to develop residential projects with an additional pipeline of ~1,350 units for a combined project value of about SGD278m. Both projects are located in Ho Chi Minh City. A 21 December 2015 article on The Straits Times reported that CapitaLand is also looking to invest in Vietnam’s office property segment. One method would be buying completed office buildings and upgrading them, in line with its asset enhancement initiatives in Singapore, according to the article.
Favourable macro factors in Vietnam CapitaLand stands to Vietnam experienced the second-fastest CAGR in GDP per capita among ASEAN member benefit from focusing states at 12.2% from 2000 to 2014, second only to Laos. Nonetheless, there appears to be on Hanoi and Ho Chi room left to grow given the disparity in GDP per capita between Vietnam and its ASEAN Minh City neighbours.
Although Vietnam’s population growth rate has steadily trended down since the 1980s, we note the effect of a higher base as the country has added about 1m per year since 2001 in absolute terms. Similar to China, Vietnam has seen a strong urbanisation trend, picking up pace since 1990. Back in 1990, about 20% of the population lived in urban cities, while by the end of 2014, about 33% resided in those cities. With the strong urbanisation trend in Vietnam, CapitaLand stands to benefit from its focus on cities like Hanoi and Ho Chi Minh.
YoY growth in GDP per capita of ASEAN countries GDP per capita of ASEAN countries in 2014 40% (USD) 30% 12,000
20% 10,000 10% 8,000 0% 6,000 (10%)
(20%) 4,000
2013 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2014 2000 2,000 Thailand Vietnam Indonesia Cambodia Philippines Malaysia 0 Laos Malaysia Thailand Indonesia Philippines Vietnam Laos Cambodia
Source: CEIC, World Bank, Daiwa Source: CEIC, World Bank, Daiwa
Vietnam: population and growth trend Vietnam: urbanisation trend (m) (%) 100 6% 35 90 80 5% 30 70 4% 25 60 50 3% 20 40 15 30 2% 20 1% 10 10 0 0% 5
0
2002 2011 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2005 2008 2014
Population YoY growth (RHS)
1984 1960 1963 1966 1969 1972 1975 1978 1981 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Source: CEIC, Vietnam General Statistics Office, Daiwa Source: CEIC, World Bank
36
CapitaLand (CAPL SP): 26 February 2016
Positive regulatory changes since July 2015 On 25 November 2014, Vietnam’s National Assembly passed 2 laws – the new Housing Law and Real Estate Business Law, which we believe removed critical obstacles to foreign property ownership. These laws came into effect on 1 July 2015. To follow are what we regards as some of the more significant changes impacting foreign investors and developers.
New regulations allow Allow broader foreign investment. Under the 2014 Housing Law, any foreign individual foreign individuals to with an entry visa is authorised to purchase a house, with an ownership period of 50 years buy residential houses that can be extended. For foreign entities, house ownership is not to exceed the period for leasing purposes stated in the investment certificate, including extensions of the term operating in Vietnam. The individuals or entities may own up to 30% of units available in a single apartment building and up to 250 residential houses in a ward administrative unit. The houses purchased may be used for leasing purposes.
In 2010, the National Assembly passed a resolution which allowed some foreigners to purchase houses in Vietnam. However, a foreigner could only purchase one condominium apartment in a commercial housing project for a period of no more than 50 years. The houses purchased could only be used for residing in, and not for leasing, office or other purposes.
Property developers More protection for investors. Investors in real-estate projects must be guaranteed by must be guaranteed by credit institutions before they can sell or lease out residential houses yet to be built. In the credit institutions prior event that they fail to hand over residential houses as agreed in the sale, the purchaser to sale or leasing of may approach the guarantor to return the advances and other payments made to the unfinished projects investors. This requirement is designed to help purchasers feel more secure in their transactions and identify capable investors.
Restrictions on minimum area lifted. Under the 2014 Housing Law, the standard area of each residential house must be decided by the project investor in conformity with the construction zoning plan, standards and regulations. Previously, regulations meant that investors had to conform to certain restrictions such as a minimum floor area (45/50 sqm) for condominium apartments/attached houses.
Real estate transactions without trading platforms. The new law stipulates that real- estate transactions need not be conducted via trading platforms, but based on agreements among developers and purchasers. This provision will reduce certain procedures involved in the transactions. Previously, all transactions had to be done via trading platforms.
Higher capital requirements for developers. The 2014 Real Estate Business Law stipulates that the legal capital requirement to engage in the real estate business is determined by the government but cannot be less than VND20bm (SGD1.2m). This requirement is considerably higher than the previous legal capital requirement of VND6bn. However, as today’s real-estate projects require large capital investments, the law’s adjustment of the legal capital requirement is reasonable as a first step to eliminating real estate investors who do not have sufficient financial resources, in our view.
37
CapitaLand (CAPL SP): 26 February 2016
Summary of relevant changes to Vietnam housing policy Item Former law New law Impact Foreign - Foreign individuals only allowed to buy 1 apartment Foreign individuals and foreign entities can buy and own houses as well Larger pool of potential buyers ownership of - Foreign entities allowed to buy and own multiple as apartments in a residential project. They can own up to 30% of units in real property apartments in a commercial residential project an apartment building or up to 250 houses within a particular ward Duration of Foreign ownership of real property was limited to 50 years Foreign ownership rights for individuals remain at 50 years, but are now Ownership rights can be viewed as foreign for a foreign individual, or for entities, the duration as set out extendable. If married to a Vietnamese national, the foreign individual is permanent ownership in its investment certificate entitled to permanent ownership rights Leasing rules Foreign owners were not able to rent out their properties Foreign owners are permitted to lease out their properties Individuals can buy houses for investment purposes Office Foreign entities could not buy an office building (unless built Entities are able to buy completed buildings for their own office, - Commercial property developers have a building by them); but only lease an office building from third parties. manufacturing or business purposes wider pool of potential buyers ownership - Foreign entities can save on rent by buying a building Pre-sales/ - Developers could enter into pre-sale agreements prior to Developers are permitted to pre-sale or pre-lease the real estate property Helps to secure sales for development pre-leases completion of construction based on certain conditions before construction is completed if they have a bank guarantee projects earlier - No pre-leasing was allowed before completion Bank None Developers must be guaranteed by credit institutions to secure their Helps to rebuild buyer confidence guarantee for completion of the project or refund payments made by purchasers in the dampened by developers' non/delayed pre-sales event the developer fails to deliver on the residential house performance in recent years Legal capital A firm engaged in real estate business had to maintain a The legal capital requirement raised to VND20b Help weed out developers without strong requirements minimum legal capital of VND6b financial backing Construction - Minimum construction floor area (MCFA) for an MCFA up to developers' discretion based on the detailed construction More flexibility, especially for lower-end and parameters apartment/terrace house is 45/50 sqm with a frontage of at master plan and investment approval for the project social housing developers least 5 metres for the latter - The MCFA for a villa is 50% of the underlying land area and the height may not exceed 3 floors
Source: Various news sources, complied by Daiwa
Rising interest negative … but not a deal-breaker While we think the implications of December’s US interest-rate hike and further potential hikes in 2016 would have a negative impact on CapitaLand’s balance sheet and interest expense ratios, we do not think the company would be severely derailed, as 70% of its borrowings are on fixed terms while the unfixed debt is related to residential development projects.
In December 2015, the US Fed raised interest rates by 25bps, its first hike since 2006. This hike lifted the Fed’s funds rate to 0.25-0.50%. The market had been pricing in an interest-rate hike lift-off in 2015.
In Singapore, the 3-month Singapore interbank offered rate (SIBOR), which is used extensively to price home loans, ended 2015 at 1.19%, up almost 3-fold since the start of 2015. The 3-month swap offer rate (SOR), a benchmark for commercial loans, rose at a faster pace to 1.7% as at end-2015, up from 0.7% at the start of the year.
As SOR is influenced by USD/SGD exchange rates, SOR surged past SIBOR in 2015, when the USD strengthened by 6.9% against the SGD.
SIBOR and SOR SGD/USD exchange rate (%) (SGD/USD) 4.0 1.9 3.5 1.8 3.0 1.7 2.5 1.6 2.0 1.5 1.5 1.0 1.4 0.5 1.3 0.0 1.2
1.1
Jan-14 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-15
SIBOR SOR
Jan-01 Jan-00 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Source: Bloomberg Source: Bloomberg
38
CapitaLand (CAPL SP): 26 February 2016
Evenly spread debt maturity schedule: 70% of debt fixed as at end-2015 CapitaLand lowered its implied interest rate to 3.5% in 2015, down from 5.6% in 2011. With the interest rate hike in the US in December 2015, we expect interest rates to increase slightly.
We think the company is in a healthy position to pay off debt in a single year given that it has SGD8bn available in cash (SGD4.2bn), and an undrawn credit facility (SGD3.8bn), as at 31 December 2015. CapitaLand has a well-balanced debt maturity profile as well, with no more than SGD3bn expiring in any given year.
Management is The falling cost of debt of the company has improved CapitaLand’s interest coverage ratio, comfortable with the which came in at 6.1x for 2015, up from 5.4x for 2011. We expect this ratio to be company’s net debt-to- maintained in 2016, with most of its operating income derived from recurring sources equity ratio, which was (malls, office buildings, serviced residences). While its net debt-to-equity ratio rose to 0.48x 0.48x at end-2015 in 2015, from 0.31x in 2011, it was still an improvement on the 0.57x in 2014. Management is comfortable with this leverage ratio given its cash balance and credit facilities.
With about 70% of its debt on fixed-rate terms, CapitaLand should see only a minimal impact from any further hike in interest rates in the US. Management said the floating interest rate only impacts the strata unit debt taken on for its residential and commercial strata units. And these loans are repaid whenever the company receives payment from buyers; hence, it opts not to have fixed rates on these types of debt.
CapitaLand: implied interest and financing interest rates CapitaLand: debt maturity profile as at 31 December 2015 (%) (SGD bn) 6 5.6 4 5.0 Average: 3.3 years 5 2.9 3.0 4.19 3 3.78 3.7 2.4 4 3.38 3.4 3.5 2.2 2.2 2.98 3.10 3.20 3.20 2.75 2 1.7 3 1.0 2 1 0.7 1 0.1 0 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 and 2011 2012 2013 2014 2015 2016E 2017E 2018E beyond Implied interest rate Financing interest rate Debt amount (LHS) Average debt maturity (RHS)
Source: Company, Daiwa forecasts Source: Company Note: Implied interest rate = finance cost before capitalisation / average debt; financing interest rate = finance cost / average debt; 2013 implied interest rate
CapitaLand: % of debt on fixed rate CapitaLand: net debt-to-equity and interest coverage ratios 80% (x ) (x ) 77% 0.6 0.57 7.5 75% 7.2 75% 7.0 0.5 0.48 0.45 6.5 70% 70% 0.39 70% 0.4 6.1 6.0 66% 0.31 0.3 5.7 5.5 5.5 65% 5.4
0.2 5.0 60% 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Net debt / equity (LHS) Interest coverage ratio (RHS)
Source: Company Source: Company
39
CapitaLand (CAPL SP): 26 February 2016
Effective capital management should result in the 8% ROE target being reached by 2018E Operating ROE to hit We forecast CapitaLand to see an operating ROE of 5.6% by 2018, up from 3.5% in 2014. 6% by 2018E; rising to Including revaluation gains, the ROE should rise to 8.7% for 2018E, in line with the low end 8.7% if revaluation of management’s target range of 8-12% ROE. We note that our forecasts for total ROE gains are included include revaluation losses for its office properties in Singapore, due to lower capital values as a result of softening rents. A lower-than-expected drop in Singapore office asset prices could result in upside risk to our ROE forecasts.
In our opinion, effective capital management could be the deciding factor enabling the group to reach the upper end of its ROE target range. This could include 1) reducing debt, 2) increasing the dividend payout ratio to reduce equity, or 3) the monetisation of assets.
However, we note there could be 2 positive surprises over our forecast period: 1) better- than-expected capital values for office properties, and 2) revaluation gains from malls and integrated developments under development. We have not assumed any revaluation gains from malls and integrated developments set to open in 2016-18E, which would reasonably expect to see an improvement in capital value once they become operational. The revaluation gains from the malls and integrated developments set to open in 2016-18E could potentially lift CapitaLand’s ROE once the properties have been revalued.
We expect recurring income sources to make up 79% of the group’s operating income in 2018E, up from 64% in 2015, driven by higher rental income from the opening of new integrated developments and malls in China, as well as positive rental reversions. However, we think the percentage could go higher after 2018E, as CapitaLand would have completed the construction of more than half of its existing residential units in China and most of its residential developments in Singapore, both by the end of 2019, on our estimates.
CapitaLand: EBIT breakdown by asset class EBIT growth driven by EBIT (SGDm) 2014 2015E 2016E 2017E 2018E By asset class retail, commercial and Residential 713 668 463 470 505 - Singapore 94 148 223 mixed developments - China 369 322 282 Commercial and mixed developments 362 442 425 459 479 - Singapore 327 332 328 - China 98 127 151 Retail 519 548 698 801 962 - Singapore 373 402 448 - China 235 304 408 - Others 90 95 105 Ascott 188 216 300 351 411 Corporate and others -66 -32 27 25 17 Total 1716 1841 1914 2105 2374
As a percentage of EBIT (%) Residential 41.5% 36.3% 24.2% 22.3% 21.3% - Singapore 4.9% 7.0% 9.4% - China 19.3% 15.3% 11.9% Commercial and mixed developments 21.1% 24.0% 22.2% 21.8% 20.2% - Singapore 17.1% 15.7% 13.8% - China 5.1% 6.0% 6.4% Retail 30.3% 29.8% 36.5% 38.1% 40.5% - Singapore 19.5% 19.1% 18.9% - China 12.3% 14.4% 17.2% - Others 4.7% 4.5% 4.4% Ascott 11.0% 11.7% 15.7% 16.7% 17.3% Corporate and others -3.8% -1.7% 1.4% 1.2% 0.7% Total 100.0% 100.0% 100.0% 100.0% 100.0%
YoY growth (%) Residential -6.3% -30.7% 1.5% 7.5% - Singapore 57.7% 50.6% - China -12.8% -12.3% Commercial and mixed developments 22.1% -3.7% 7.9% 4.4% - Singapore 1.3% -1.2% - China 30.0% 18.8% Retail 5.6% 27.3% 14.8% 20.0% - Singapore 7.6% 11.5% - China 29.4% 34.3% - Others 6.2% 10.2% Ascott 14.6% 39.2% 16.9% 17.3% Corporate and others n.a. n.a. -9.7% -30.7% Total 7.3% 3.9% 10.0% 12.8%
Source: Company, Daiwa forecasts
40
CapitaLand (CAPL SP): 26 February 2016
`CapitaLand: EBIT breakdown by business unit (excludes CapitaLand: EBIT breakdown by asset classes (excludes revaluation gains and impairments) revaluation gains and impairments) (SGD '000) 100% 1% 1% 12% 12% 2,500 17 16% 17% 25 80% 27 411 30% 2,000 23 30% 48 351 36% 38% 223 300 60% 183 1,500 962 24% 24% 600 801 684 698 40% 1,000 22% 22% 433 309 513 467 449 20% 36% 36% 500 24% 22% 551 492 482 421 480 0% -2% 0 2014 2015 2016E 2017E 2018E (20%) CapitaLand Singapore CapitaLand China CapitaMalls Asia 2015 2016E 2017E 2018E Ascott Corporate and Others Strata sales Commercial Retail Service Residences Others
Source: Company, Daiwa forecasts Source: Company, Daiwa forecasts Note: Includes income from associates and JVs Note: Includes income from associates and JVs
CapitaLand: PATMI and ROE We look for (SGD '000) 8.7% CapitaLand’s ROE 2,000 9% 1,800 (including revaluation 7.1% 7.1% 8% 1,600 6.4% gains) to hit 8.7% by 1,400 6.1% 7% 5.6% 2018E 1,200 5.4% 5.3% 6% 1,000 4.8% 800 5% 3.5% 3.8% 600 3.2% 4% 400 3% 200 503 840 582 1,161 653 1,066 884 1,173 1,012 1,366 1,140 1,755 0 2% 2013 2014 2015 2016E 2017E 2018E Operating PATMI PATMI incl reval gains and impairments Operating ROE ROE incl reval gains
Source: Company, Daiwa forecasts
CapitaLand: EBIT breakdown for the residential segment by project China to account for the EBIT (SGDm) 2016E 2017E 2018E bulk of EBIT in terms of Singapore Bedok Residences 3 3 0 residential Cairnhill 1 36 81 developments d'Leedon 4 4 7 Marine Blue 11 9 10 Site at Yio Chu Kang 4 19 37 Sky Habitat 3 3 7 Sky Vue 19 22 0 The Interlace 18 18 23 The Nassim 16 25 49 The Orchard Residences 9 7 0 Urban Resort Condominium 5 0 0 Victoria Park Villas 0 3 9 Total 94 148 223
China Chengdu Century Park 88 75 70 Dolce Vita 2 6 3 Hanzhonglu Plot 92 0 59 8 International Trade Centre 4 4 3 New Horizon 1 1 1 ONE 'iPark (Raffles City Shenzhen) 40 7 6 Riverfront 39 6 5 Summit Era 0 8 7 The Metropolis 38 23 72 The Paragon 69 44 48 Vermont Hills 19 3 2 Vista Garden 29 4 3 Wanxiang 0 50 41 Others 8 7 35 Total 339 297 302
Source: Daiwa forecasts
41
CapitaLand (CAPL SP): 26 February 2016
Borrowing and capex CapitaLand’s total borrowing amounted to SGD16bn at the end of 2015, down from a record SGD16.4bn as at 3Q15, as it paid off debt relating to the Bedok Mall, which it sold in October 2015 to associate CMT. Looking ahead, we expect the company’s net debt-to- total-equity ratio to hover around 0.5x, similar to 2015.
Estimated capex of We forecast the group to maintain a cash balance ranging from SGD2.6-3bn for 2016-18E, SGD3.7bn for 2016-18E down from SGD4.2bn as at the end of 2015, as we expect capex of SGD3.7bn over the 2016-18 period, with the bulk booked in 2016E. We view this amount of cash as sufficient for the company’s day-to-day operations, while giving it the flexibility to pursue opportunistic acquisitions. This cash, coupled with available undrawn facilities, means that CapitaLand had about SGD8bn as a war chest as at the end of 2015. However, we would expect the company to increase its borrowing as and when it acquires new landbank in China.
CapitaLand: total debt and net debt-to-total equity
Net debt-to-total-equity (SGD '000) 0.57 18,000 0.6 to be maintained at 0.51 0.50 16,000 0.48 0.48 around 0.5x for 2016-18E 0.45 0.5 14,000 0.39 12,000 0.31 0.4 10,000 0.3 8,000 6,000 0.2 4,000 0.1 2,000 12191 14180 12563 15936 15986 16058 16058 16058 0 0.0 2011 2012 2013 2014 2015E 2016E 2017E 2018E Total debt Net debt / equity (RHS)
Source: Company, Daiwa forecasts
Dividend policy We look for a DPS of SGD9.5-10.5¢ for 2016-18E, translating into a dividend payout ratio to core PATMI of 39-46%. We see this level as conservative given a ratio of 59-81% from 2011-15, as we believe CapitaLand would want to keep more cash on hand to take advantage of any M&A opportunities that may arise. CapitaLand’s policy is to distribute at least 30% of its core PATMI, excluding revaluation gains, impairment charges and write- backs, bar any unforeseen circumstances, as dividends. Given CapitaLand’s focus on nurturing its recurring income sources, we believe it has sufficient cash flow to support our dividend payment assumptions over our forecast period.
CapitaLand: dividend per share and dividend payout ratio We forecast a dividend (SGD) payout ratio to core 0.11 81% 90% 80% PATMI of 39-46% for 68% 66% 0.10 59% 59% 70% 2016-18E 60% 0.09 46% 42% 39% 50% 40% 0.08 40% 30% 32% 36% 35% 32% 33% 31% 20% 0.07 25% 0.08 0.07 0.08 0.09 0.09 0.10 0.10 0.11 10% 0.06 0% 2011 2012 2013 2014 2015E 2016E 2017E 2018E Dividend per share Payout ratio (total PATMI) Payout ratio (operating PATMI)
Source: Company, Daiwa forecasts
Higher-than-book-value Monetisation of assets disposals of non-core Higher-than-book-value disposals could provide a positive surprise to our earnings assets could be share- forecasts. In 2015, CapitaLand sold its 30% stake in the PWC Building for SGD150m and price catalysts divested its Bedok Mall to CMT for SGD783m. It could look to monetise its stake in 3 malls
42
CapitaLand (CAPL SP): 26 February 2016
(ION Orchard, Westgate, Star Vista) and 1 office building (CapitaGreen) by disposing of them to third parties or divesting them to its REITs. In the long run, the group could spin off its Raffles City and shopping malls in China into a REIT.
Fund-management business growth We see the potential for the group’s margins and ROE to rise as it benefits from economies of scale through an increase in AUM at its fund-management business. As of 31 December 2015, the group had SGD76.8bn under AUM, with about SGD46bn held in real-estate private equity funds and its 5 REITs. Management intends to increase the total AUM to SGD100bn by 2020 and has a target to form 6 new funds, with as much as SGD10bn AUM combined.
In July 2015, Ascott set up a SGD600m fund with Qatar Investment Authority, with an initial focus on Asia Pacific and Europe. In November 2015, the fund acquired 2 serviced residences in Paris and Tokyo for SGD191m.
Risks to our Buy call on the stock Deterioration in the global, Singapore and China economies. A significant and prolonged slowdown in the economies of Singapore and China could lead to a slowdown in business expansion, higher unemployment rates and softer spending power, resulting in lower demand for retail and office space. We see this as the main risk to our positive call on the stock.
Property tightening measures in China. CapitaLand has been a beneficiary of property relaxation measures in China over the past few years. Any adjustments to tighten the regulations, such as lower the loan-to-value ratio or increase financing costs relating to property purchases, could lower demand for residential properties in the country.
Release of land supply for office and retail purposes in Singapore. Any indication of new office and retail space being released could lead to higher vacancy rates or lower rental rates for CapitaLand’s properties.
Worse-than-expected depreciation of CNY versus SGD. Daiwa’s chief economist, Kelvin Lai, forecasts a 2016 year-end CNY:USD target of 7.50, while his SGD/USD target is 1.58. This implies a CNY:SGD exchange rate of 4.75 for 2016 year-end. We have incorporated this forecast into our assumptions. However, any further weakening of the CNY vs. USD and SGD would lead to a lower capital value for CapitaLand’s assets in China when converted back into SGD terms, resulting in a lower GAV and RNAV.
Asia ex-Japan: exchange rates (National currency/USD, end of period) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E China 7.81 7.30 6.83 6.83 6.62 6.29 6.23 6.05 6.21 6.60 7.50 7.50 Hong Kong 7.78 7.8 7.75 7.76 7.78 7.77 7.75 7.75 7.76 7.75 7.79 7.8 Taiwan 32.6 32.4 32.9 32.0 30.4 30.3 29.0 29.8 31.6 33.1 34.7 35.5 Korea 930 938 1,258 1,168 1,139 1,153 1,071 1,055 1,099 1,200 1,250 1,200 India 43.6 40.0 51.0 45.1 44.7 51.2 54.4 59.9 62.5 66.2 68.0 68.0 Singapore 1.53 1.44 1.44 1.4 1.29 1.3 1.22 1.27 1.33 1.49 1.58 1.59 Indonesia 9,020 9,419 10,950 9,400 8,991 9,068 9,670 12,189 12,385 14,000 14,500 14,000 Malaysia 3.53 3.31 3.46 3.42 3.08 3.18 3.06 3.28 3.5 3.95 3.9 3.8 Philippines 49.1 41.4 47.5 46.4 43.9 43.9 41.2 44.4 44.6 47.3 49.8 50.2 Thailand 36.0 33.7 34.9 33.3 30.2 31.7 30.6 30.7 33.0 34.1 36.6 37.0 (Implied national currency/SGD, end of period) China 5.10 5.07 4.74 4.88 5.13 4.84 5.11 4.76 4.67 4.43 4.75 4.72 Hong Kong 5.08 5.42 5.38 5.54 6.03 5.98 6.35 6.10 5.83 5.20 4.93 4.91 Taiwan 21.31 22.50 22.85 22.86 23.57 23.31 23.77 23.46 23.76 22.21 21.96 22.33 Korea 608 651 874 834 883 887 878 831 826 805 791 755 India 28.50 27.78 35.42 32.21 34.65 39.38 44.59 47.17 46.99 44.43 43.04 42.77 USD 0.65 0.69 0.69 0.71 0.78 0.77 0.82 0.79 0.75 0.67 0.63 0.63 Indonesia 5,895 6,541 7,604 6,714 6,970 6,975 7,926 9,598 9,312 9,396 9,177 8,805 Malaysia 2.31 2.30 2.40 2.44 2.39 2.45 2.51 2.58 2.63 2.65 2.47 2.39 Philippines 32.09 28.75 32.99 33.14 34.03 33.77 33.77 34.96 33.53 31.74 31.52 31.57 Thailand 23.53 23.40 24.24 23.79 23.41 24.38 25.08 24.17 24.81 22.89 23.16 23.27
Source: CEIC, Daiwa forecasts Note: fiscal year for India
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CapitaLand (CAPL SP): 26 February 2016
Valuation and recommendation We initiate coverage of CapitaLand with a Buy (1) rating as we are positive on the potential land replenishment and asset reconstitutions initiatives by the company. We arrive at our SOTP-based 12-month target price of SGD3.93, based on a 20% discount to our RNAV of SGD4.90. Our key assumptions include: 1) adding the NPV of future profits for its residential developments, 2) applying a 2-7% discount to the valuations of its non-listed operational retail and commercial properties, 3) assigning a PER of 15x for its fund- management business, 4) assigning the target or last traded price for its listed REITs, and 5) valuing its under-development retail and commercial assets at cost. The 20% discount that we apply to CapitaLand’s RNAV is close to the company’s median price-to-SOTP discount of 17% since 2010.
CapitaLand: SOTP valuation Market Cap Share price No. of shares TP Upside Pro-rata GAV GAV Stake (SGDm) (in l.c./share) (m) (in l.c./share) (%) (SGDm) (SGD/shr) % of total Singapore - Residential 3,153 0.74 8.9% - Retail 3,422 0.81 9.6% - Commercial 757 0.18 2.1% - Listed REITs - CMT 29% 7,473 2.11 3,542 2.12 0% 2,190 0.52 6.1% - CCT 31% 4,078 1.38 2,955 1.31 -5% 1,219 0.29 3.4% China - Residential 4,669 1.10 13.1% - Commercial 957 0.23 2.7% - Retail - Malls 7,397 1.74 20.8% - Raffles City malls 4,151 0.98 11.7% - CRCT 34% 1,181 1.40 843 1.34 -4% 379 0.09 1.1% Ascott - Non-listed 1,375 0.32 3.9% - ART 46% 1,715 1.11 1,552 1.28 16% 919 0.22 2.6% Others - Fund management business 3,238 0.76 9.1% - CMMT 35% 3,017 1.49 2,025 429 0.10 1.2% - Retail malls 1,358 0.32 3.8% Total GAV (SGDm) 35,612 8.38 100.0% Less: Net debt (SGDm) (11,885) Less: Other liabilities (SGDm) (2,860) Total RNAV (SGDm) 20,868 Number of outstanding shares (m) 4,248 RNAV per share (SGD) 4.91 Discount to RNAV/share 20% Target price 3.93 Source: Bloomberg, Company, Daiwa forecasts; Note: As at 25 February 2016
CapitaLand price-to-SOTP Trading currently at a (x ) 41% discount to our 1.6 end-2016E RNAV, and 1.4 more than 1SD below its 1.2 past-11-year mean price- 1.0 to-RNAV, which was last 0.8 seen during the GFC 0.6
0.4
Apr-05 Apr-07 Apr-08 Apr-10 Apr-13 Apr-06 Apr-09 Apr-11 Apr-12 Apr-14 Apr-15
Aug-04 Dec-04 Aug-05 Aug-07 Dec-07 Dec-09 Aug-10 Dec-10 Aug-12 Dec-12 Aug-13 Aug-15 Dec-15 Dec-05 Aug-06 Dec-06 Aug-08 Dec-08 Aug-09 Aug-11 Dec-11 Dec-13 Aug-14 Dec-14 Price-to-SOTP Mean +1 SD -1 SD Median
Source: Bloomberg, Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: peer valuations Bloomberg Name Market Currency Sh price Book PBR Yield ROA ROE 6-mth D/E YTD Sh Ticker Cap 25-Feb-16 Value FY0 FY1 FY1 FY2 FY0 FY1 FY0 FY1 ADTV Perf (USDm) (l.c) (l.c.) (x) (x) (%) (%) (%) (%) (%) (%) (USDm) (%) (%) CAPL SP CAPITALAND LTD* 8,776 SGD 2.88 4.38 0.66 0.62 3.3 3.5 1.8 1.9 4.8 4.8 29.3 51.6 -13.4
Singapore developers HKL SP HONGKONG LAND HOLDINGS LTD 13,576 USD 5.85 11.76 0.50 0.49 3.3 3.4 2.7 2.6 3.3 3.2 21.6 15.7 -17.6 GLP SP GLOBAL LOGISTIC PROPERTIES L 5,964 SGD 1.74 1.83 0.68 0.68 3.3 3.2 0.6 2.8 1.3 4.8 28.8 32.5 -17.9 CIT SP CITY DEVELOPMENTS LTD 4,632 SGD 7.09 9.53 0.74 0.69 1.9 1.9 2.8 3.3 6.8 6.6 9.5 74.8 -6.5 UOL SP UOL GROUP LTD 3,193 SGD 5.59 9.77 0.57 0.55 2.6 2.7 2.2 3.6 3.3 4.9 5.4 38.9 -9.8 FCL SP FRASERS CENTREPOINT LTD 3,244 SGD 1.56 2.28 0.69 0.61 4.9 4.9 2.8 3.6 9.4 7.9 0.2 157.9 -6.5 GUOL SP GUOCOLAND LTD 1,458 SGD 1.73 2.99 0.58 0.55 3.8 3.4 2.0 0.7 6.1 2.6 0.2 179.8 -4.2 YLLG SP YANLORD LAND GROUP LTD 1,472 SGD 1.06 9.88 0.50 0.48 1.1 1.5 0.6 1.1 2.3 4.3 1.3 103.3 5.5 OUE SP OUE LTD 1,042 SGD 1.62 4.35 0.37 0.37 2.0 1.9 1.3 1.0 2.4 2.0 0.4 74.4 -9.5 PREH SP PERENNIAL REAL ESTATE HOLDIN 1,032 SGD 0.88 1.59 0.55 0.97 1.1 5.4 0.9 1.9 1.9 3.5 0.3 66.8 -7.9 Weighted average 0.58 0.58 3.0 3.2 2.1 2.7 4.0 4.5 14.89 54.8 -12.5
China developers 2202 HK CHINA VANKE CO LTD-H 24,353 HKD 17.14 8.05 1.79 1.59 4.0 4.7 3.0 3.6 19.3 18.6 27.3 78.2 -25.2 688 HK CHINA OVERSEAS LAND & INVEST 28,429 HKD 22.40 18.96 1.18 1.13 2.7 3.1 7.0 7.4 17.5 17.4 75.1 70.9 -17.6 3699 HK DALIAN WANDA COMMERCIAL PR-H 18,384 HKD 31.55 34.15 0.78 0.72 4.3 5.0 2.6 3.5 9.8 11.2 15.9 118.4 -30.3 1109 HK CHINA RESOURCES LAND LTD 16,146 HKD 18.10 16.35 1.11 0.96 3.0 3.5 3.7 4.5 12.7 12.3 35.3 87.8 -19.9 3333 HK EVERGRANDE REAL ESTATE GROUP 8,782 HKD 4.99 3.71 1.13 0.88 6.7 7.0 0.4 1.7 3.9 11.9 31.9 305.3 -26.8 2007 HK COUNTRY GARDEN HOLDINGS CO 8,216 HKD 2.85 2.80 0.86 0.77 5.8 6.3 3.8 3.5 17.8 15.5 6.9 107.7 -10.4 960 HK LONGFOR PROPERTIES 7,066 HKD 9.41 8.57 0.92 0.84 3.7 4.1 4.1 4.6 15.3 14.3 4.7 104.0 -18.6 813 HK SHIMAO PROPERTY HOLDINGS LTD 4,407 HKD 9.86 14.05 0.59 0.54 8.5 9.0 3.0 3.6 13.7 15.9 11.7 132.3 -28.4 3377 HK SINO-OCEAN LAND HOLDINGS 3,336 HKD 3.45 5.89 0.49 0.48 6.8 7.6 2.8 3.1 8.8 8.7 17.4 106.0 -30.6 Weighted average 1.15 1.04 4.2 4.7 3.9 4.5 14.5 15.0 34.76 107.1 -22.4
Source: Bloomberg, *Daiwa forecasts
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CapitaLand (CAPL SP): 26 February 2016
Appendix 1: company profile CapitaLand is a property developer and landlord with a portfolio of residential and office strata properties (26% of total assets as at 31 December 2015), commercial and integrated developments (35%), shopping malls (21%) and serviced residences (17%). It has 4 business units and 5 listed REITs under its umbrella, and a fund-management business as well.
Geographically, China accounts for the lion’s share of the company’s assets (47% of total assets), with Singapore (36%) a close second. The rest is derived from other cities in Asia (11%) and Europe, and others (eg, Australia) (6%). The tier-1 and upper tier-2 cities make up 86% of CapitaLand’s assets in China. Temasek Holdings is the largest shareholder in CapitaLand, with a 39.6% stake.
CapitaLand: corporate structure CapitaLand has 5 REITs CapitaLand under its umbrella • Regional Investments • CapitaLand Fund Management
CapitaLand CapitaLand CapitaLand The Ascott China Mall Asia Singapore Limited
33.6% 29.2% 35.1% 31.5% 46.2% CapitaLand CapitaLand CapitaLand Ascott CapitaLand Retail China Malaysia Mall Commercial Residence Mall Trust Trust Trust Trust Trust
Source: Company
CapitaLand: total asset breakdown by business segment (as at CapitaLand: total asset breakdown by geography (as at 31 31 December 2015) December 2015)
Serviced Others Europe and residence 1% Residential and others 17% office strata Other Asia 6% 26% 11%
China 47% Shopping malls 21% Commercial and integrated developments 35% Singapore 36%
Source: Company Source: Company Note: China includes Hong Kong; Other Asia excludes Singapore and China but includes projects in Greater China; Europe and others includes Australia and USA
CapitaLand: total asset breakdown by business unit (as at 31 CapitaLand: Singapore asset breakdown by business segment December 2015) (as at 31 December 2015)
Corporate and Serviced Others others residence 1% Residential and TAL 3% 6% office strata 15% CLC 22% 28% Shopping malls 24%
Commercial and CMA integrated 30% developments CLS 47% 24%
Source: Company Source: Company
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: China asset breakdown by business segment (as CapitaLand: China property value by business segment (as at at 31 December 2015) 31 December 2015) Serviced Tier 3 residence 7% Tier 1 Beijing 9% Other tier 2 15% 7% Shopping malls Residential and 16% office strata 37%
Tier 1 Shanghai Commercial and Upper tier 2 29% integrated 33% Tier 1 developments Guangzhou and 38% Shenzhen 9%
Source: Company Source: Company Note: Upper tier-2 cities refers to Tianjin, Hangzhou, Ningbo, Chengdu, Chongqing, Wuhan
Appendix 2: harnessing technology across its business units CapitaLand has invested in and rolled out technology initiatives across its various business units – Food to Go, WeChat and CapitaStar for its malls, and Tujia and Alitrip for its serviced residences.
In August 2015, it formed a new technology council to boost its digital efforts to drive its real-estate business. The council members include notable venture capitalists Mr. Foo Jixun, managing partner of GGV Capital, and Mr David Su, managing partner of Matrix Partners China, as well as Mr Gabriel Lim, CEO of the Media Development Authority of Singapore.
Food to Go CapitaLand rolled out an order and pick-up food service in Raffles City Shopping Centre in October 2015. The service aims to encourage its office tenants to purchase their meals from its F&B tenants located within the mall. Office workers can make an order by 11.15am and pick up their meals at 12.30pm at the F&B outlets. This helps minimise waiting times and boost sales for the F&B stores. Management said the response has been encouraging. It has identified other malls where it plans to launch the service, with a focus on integrated developments with an office component. It has plans to expand into the delivery service in the future.
WeChat/CapitaStar In 2015, CapitaLand introduced CapitaStar Version 2.0 in China, which is a loyalty programme that tracks each of its mall’s customer demographics and purchases. This information is shared with the CapitaLand’s mall tenants. The tenants can use the data collected to adjust their sales mixes in order to attract and improve transactions. As at 25 October 2015, CapitaStar had 2.2m members in Singapore, China, Malaysia, Japan and India.
CapitaLand is not alone in this approach. Other China mall operators have attempted to integrate their online with offline businesses. In 2015, CapitaLand formed partnerships with Intime and Alibaba and with Parkson and Dianping.com.
CapitaLand also engages with its customers via WeChat run by Tencent in China, which it uses to push marketing promotions and new tenant launches.
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CapitaLand (CAPL SP): 26 February 2016
Tujia In August 2015, an Ascott-led consortium invested SGD67.7m in Tujia, an online apartment-sharing platform in China. Ascott also plans to form a JV with Tujia to operate and franchise serviced apartments in China, under a new brand. These will include newly sourced properties and Tujia’s serviced apartments in China deemed suitable for conversion. The venture will aid TAL in its expansion within China, where it targets to manage 20,000 units by 2020.
Tujia, China’s answer to Airbnb Inc, caters to travellers looking for an alternative to hotels, for their vacations and business travel within and outside of China. Its website features more than 310,000 apartments across close to 400 destinations within and outside of China. Tujia also manages apartments for a fee and franchises its business to third-party operators.
On Singles’ Day in China in 2015 (11 November), Ascott ran an online marketing promotion to lease out some of its serviced residence for CNY11 for 1 night. We understand that the campaign was a success, leading to a lot of registrations for its units even without the promotion.
Alitrip Ascott has said it intends to list more than 26,000 apartments in its serviced residences on Alitrip, an online travel service platform under the Alibaba Group, by June 2016. The partnership will deepen Ascott’s access to over 100m Chinese travellers currently served by Alitrip. As at 8 January 2016, 24 of Ascott’s China properties, with 4,300 apartment units, were available for booking by Alitrip users through a directly operated online store.
Appendix 3: extension/ABSD charges for Singapore- listed developers We estimate that CapitaLand will face extension charges to the government of SGD6.3m and SGD28.4m for 2016 and 2017, respectively, for its unsold units. This was less than 1% of its cash position as at 31 December 2015. The group also faces a potential SGD94.7m ABSD charge if it is unable to sell all the units at its residential project, Sky Vue, by December 2017. The ABSD charge represents 1.8% of its cash position as of 31 December 2015.
Estimated extension charges for Singapore developers CapitaLand’s extension Estimated extension charges (SGDm) Cash as of 31 December 2015 Extension charge as % of cash charges would have a Company 2016 2017 (SGDm) 2016 2017 Heeton Holdings* 7.6 14.2 24.8 30.6% 57.1% less than 1% impact on Hiap Hoe* 1.9 4.0 21.8 8.6% 18.5% its cash position for Wing Tai Asia 16.4 52.1 594.4 2.8% 8.8% Wheelock* 10.0 25.1 591.5 1.7% 4.2% 2016-17E Koh Brothers 0.3 0.8 64.5 0.5% 1.2% GuocoLand 5.3 24.8 2117.3 0.3% 1.2% KSH Holdings 0.3 1.5 162.0 0.2% 0.9% City Developments* 4.8 24.4 2937.9 0.2% 0.8% CapitaLand 6.3 28.4 4173.3 0.2% 0.7% Frasers Centrepoint 0.9 1.7 1330.4 0.1% 0.1% Bukit Sembawang 0.0 0.9 392.2 0.0% 0.2% OUE^ 0.0 31.1 299.8 0.0% 10.4% Oxley 0.0 0.0 576.8 0.0% 0.0% Tee Land** 0.0 0.7 13.3 0.0% 5.5% UOL* 0.0 0.0 287.3 0.0% 0.0% Sing Holdings 0.0 0.0 30.4 0.0% 0.0% UE* 0.0 0.0 498.9 0.0% 0.0% Tuan Sing^ 0.0 0.1 157.2 0.0% 0.0%
Source: URA, Realis, companies, various news sources, Daiwa estimates Note: As of 18 February 2016, *: Data as at 30 September 2015, **: Data as at 30 November 2015, ^: Data as at 30 June 2015
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CapitaLand (CAPL SP): 26 February 2016
Estimated ABSD charges for Singapore developers in 2017 We estimate Company ABSD charges (SGDm) Cash as of 31 December 2015 (SGDm) ABSD charges as % of cash Sing Holdings 21.3 30.4 70.0% CapitaLand’s ABSD Tee Land** 5.4 13.3 40.4% charges will have only a UOL* 27.3 287.3 9.5% UE* 41.1 498.9 8.2% 1.8% impact on its cash Frasers Centrepoint 97.0 1330.4 7.3% position for 2017 Wing Tai Asia 31.9 594.4 5.4% Oxley 24.4 576.8 4.2% City Developments* 79.4 2937.9 2.7% Heeton Holdings* 0.4 24.8 1.7% CapitaLand 71.0 4173.3 1.7% KSH Holdings 1.9 162.0 1.2%
Source: URA, Realis, companies, various news sources, Daiwa estimates Note: As at 18 February 2016
Appendix 4: on the ground in China (November 2015) In November 2015, we visited 6 of CapitaLand’s properties in China across 3 cities – Shanghai, Hangzhou and Suzhou.
1. LuOne – mixed development (under development) CapitaLand owns a 33% stake in LuOne, an upcoming mixed development which serves a catchment of 1m mid-to-high income consumers in downtown Shanghai. The retail component (NLA: 47,000 sqm) is expected to open in 1Q17 with a targeted tenant mix of fashion (40% of NLA), F&B (35%), kids/lifestyle (15%) and cinema (10%). The next nearest shopping mall is located 3-4km away. The development also has an office segment with a NLA of 34,000 sqm.
LuOne building model LuOne construction site
Source: Daiwa Source Daiwa
2. Raffles City Changning – mixed development (under development) Raffles City Changning is an integrated development located in the centre of Zhongshan park commercial area with direct links to 3 subway lines. It has a retail component with a net leaseable area of 80,000 sqm slated to open in 2Q17. It also has 3 Grade-A office towers. One of them is operational and 80% leased. The other 2 are expected to open in mid-2016 and 1Q17. Total development cost for the project is CNY4-5bn.
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CapitaLand (CAPL SP): 26 February 2016
Raffles City Changning office lobby Raffles City Changning construction site
Source: Daiwa Source: Daiwa
3. Ascott Heng Shan Shanghai – serviced residence (completed) Opened in April 2015, Ascott Heng Shan Shanghai is a 90-unit high-end serviced residence located next to a metro line and a 30-minute drive from Hongqiao airport. The property manager said the occupancy rate was about 85%, with 70% of the tenants staying for long durations. Most of the revenue comes from room rent, but F&B could contribute in the future when the serviced residence begins serving lunch/dinner. The property has 1- room to 3-room units with sizes ranging from 103 sqm to 276 sqm. The room rate per night ranges from CNY2,400 to CNY4,800.
Ascott Heng Shan lobby Ascott Heng Shan indoor swimming pool
Source: Daiwa Source: Daiwa
Ascott Heng Shan bedroom Ascott Heng Shan room’s dining area
Source: Daiwa Source: Daiwa
4. Riverfront Mansion – residential (under development) Riverfront Mansion is a 686-unit residential development near Hangzhou’s CBD. As of our trip, 518 units were launched with 344 sold (50% of total, 66% of launched). Construction of the project is scheduled to complete in 2Q16. The land parcel was acquired via a public tender, similar to the nearby Imperial Bay project by CapitaLand which is fully sold. The
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CapitaLand (CAPL SP): 26 February 2016
total development cost is estimated around CNY1.6bn (land: CNY16,000 psm and construction: CNY4,000 psm).
Riverfront Mansion units’ size range from 89 sqm (70% of total units) to 138 sqm, while prices range from CNY27,000 to CNY31,000 psm (average CNY28k psm). The buyers are mainly tech-related employees (Alibaba’s head office is in Hangzhou).
Riverfront Mansion showroom Riverfront Mansion construction site
Source: Daiwa Source: Daiwa
5. Raffles City Hangzhou – mixed development (under development) Raffles City Hangzhou is an integrated development with retail, office, serviced residence, SOHO, hotel and residential components. The development, linked to a metro line, is expected to open in phases from end-2016. The SOHO, residential and about 40% of office space is to be sold, with the remainder for leasing purposes. Conrad will operate the hotel. The total development cost is estimated at CNY5-6bn.
Raffles City Hangzhou building model Raffles City Hangzhou construction site
Source: Daiwa Source: Daiwa
6. Suzhou Center – mixed development (U/D) Suzhou Center is an integrated development consisting of 2 rings located in Suzhou, China. The inner ring (50% owned by CapitaLand) has 2 office towers and 1 shopping mall. The outer ring (zero interest by CapitaLand) has 2 office towers, 2 residential towers and 1 hotel. The development is expected to have net leaseable area of 177,000 sqm for retail purposes and 68,000 for office use.
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CapitaLand (CAPL SP): 26 February 2016
Suzhou Center building model Suzhou Center construction site
Source: Daiwa Source: Daiwa
Cooling measures by type Type Date Description Seller stamp duties 19-Feb-10 Introduction of a seller's stamp duty (SSD) for residential properties and land sold within a year of purchase - Ad valorem, up to 3% 30-Aug-10 Extension of SSD to all sales within 3 years of purchase: ~3% for 1st year, ~2% for 2nd year, and ~1% for 3rd year 14-Jan-11 Holding period for imposition of SSD raised from 3 years to 4 years SSD rates raised to 16%, 12%, 8%, and 4% for sales within 1, 2, 3, and 4 years respectively Introduced SSD for industrial properties and land sold within 3 years of purchase: 15% for 1st year, 10% for 2nd, and 5% for 3rd
Additional buyer stamp duties 8-Dec-11 Introduction of additional buyers' stamp duty (ABSD) - ABSD of 10% for foreigners and non-individuals - ABSD of 3% for permanent residents (PRs) buying 2nd and subsequent property - ABSD of 3% for Singaporeans buying 3rd and subsequent property 12-Jan-13 ABSD raised and also now imposed on PRs buying 1st property and Singaporeans buying 2nd property - ABSD of 15% for foreigners and non-individuals - ABSD of 5% for PRs on 1st home and 10% for 2nd or subsequent property - ABSD of 7% for Singaporeans on 2nd home and 10% for 3rd or subsequent property
Loan to value limits 19-Feb-10 Loan-to-value (LTV) limit lowered from 90% to 80% for all housing loans provided by financial institutions (FIs) 30-Aug-10 LTV limit lowered from 80% to 70% for purchase of second property 14-Jan-11 For buyers with an existing housing loan, LTV further lowered from 70% to 60% LTV for non-individual residential purchasers capped at 50% 5-Oct-12 LTV limits lowered to 60% for 1st mortgage and 40% for 2nd and subsequent mortgages for loans exceeding 30 years or extending beyond borrower age of 65 LTV limit for non-individuals lowered to 40% 12-Jan-13 LTVs tightened - For buyers with one existing loan, LTV lowered to 50%, 30% if loan tenure exceeds 30 years or beyond borrower age of 65 - For buyers with two or more existing loans, LTV lowered to 40%, or 20% if loan tenure exceeds 30 years or beyond borrower age of 65 - LTV for non-individuals lowered to 20% (from 40%) 28-Jun-13 Rules on application of LTV limits refined, including requirement that borrowers on loan be mortgagors of the property
Minimum cash payments 30-Aug-10 Minimum cash payments raised to 10% from 5% for buyers with one or more outstanding housing loans 12-Jan-13 Minimum cash downpayment raised to 25% (from 10%) for individuals with outstanding loans
Loan tenure limits 5-Oct-12 Mortgage tenure of home loans capped at 35 years 27-Aug-13 Maximum tenure for HDB housing loans lowered from 30 years to 25 years and from 35 years to 30 years for bank loans
Mortgage servicing ratio 12-Jan-13 Mortgage servicing ratio (MSR) for public housing loans capped at 35% and 30% for loans granted by HDB and banks respectively 27-Aug-13 MSR limit reduced from 35% to 30% of borrower's gross monthly income for loans granted by HDB 9-Dec-13 MSR for EC loans lowered from 60% to 30% of gross monthly income
Total debt servicing ratio 28-Jun-13 Introduction of total-debt-servicing-ratio framework - monthly debt obligations as a percentage of borrower's gross monthly income to be capped at 60%
Source: URA, Daiwa
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CapitaLand (CAPL SP): 26 February 2016
CapitaLand: management team profile Senior management Description Lim Ming Yan Mr. Lim has been the CEO of CapitaLand since 1 January 2013. Before that, he was COO of CapitaLand from May 2011 to December 2012, CEO, CapitaLand CEO of The Ascott Limited from July 2009 to February 2012 and CEO of CapitaLand China from November 2000 to June 2009. Mr. Lim is a board member of the Building Construction Authority of Singapore and Singapore Tourism Board as well as a director of Business China, an organisation that promotes bilingualism and biculturalism between Singapore and China. Arthur Lang Prior to joining CapitaLand in September 2011, Mr. Lang was the co-head of Morgan Stanley's investment banking division in Southeast Asia and CFO, CapitaLand the COO for its Asia Pacific investment banking division. Mr. Lang oversee the group’s treasury, financial reporting and controls, risk management, strategic projects, tax, investor relations and looks after the administrative matters of the internal audit department of CapitaLand. Mr. Lang is a board member of the Land Transport Authority of Singapore, Tiger Airways Holding Limited, the National Kidney Foundation and the Advisory Board of the Lee Kong Chian School of Business, Singapore Management University. Tan Seng Chai Mr. Tan was formerly the Deputy Chief Corporate Officer and Chief Human Resource Officer of CapitaLand. Mr. Tan oversees the group’s Chief Corporate Officer, CapitaLand corporate functions including human resource and administration, group communications, group legal, and compliance. Before joining CapitaLand in February 2008, Mr. Tan was with Chartered Semiconductor Manufacturing Ltd, Singapore for 12 years in key positions including heading its worldwide human resource organisation as well as overseeing key project implementation and strategic investment activities. Ng Kok Siong Mr. Ng is in charge of developing corporate systems and processes to drive efficiency and productivity. Since joining CapitaLand in 2005, Mr. Ng Chief Corporate Development Officer, CapitaLand has held various business development and finance positions including Chief Corporate Development of CapitaLand and CFO of CapitaMalls Asia Limited. Prior to that, Mr. Ng held various positions in planning and appraisal information systems, finance and investment management in Exxon Mobil and Royal Dutch Shell across Asia Pacific and Europe. Wen Khai Meng Prior to his current appointment, Mr. Wen has held other roles within the group including CIO of CapitaLand and CEO of CapitaLand Commercial CEO, CapitaLand Singapore Limited. Before joining CapitaLand, Mr. Wen was with the Urban Redevelopment Authority for 7 years and Ministry of National Development, Singapore for 4 years. Lucas Loh Mr. Loh joined CapitaLand in September 2001 and has been based in China since August 2004. Prior to his current appointment, Mr. Loh's past CEO, CapitaLand China roles include the Deputy CEO, CIO and Regional General Manager for South China, CapitaLand China, as well as the Managing Director for China of The Ascott Limited. Before that, Mr. Loh was an Associate Director for Private Equity Investment at Temasek Holdings. Jason Leow Prior to his existing appointment, Mr. Leow was the CEO of CapitaLand China since 2009. He started his career with CapitaLand in 1994 and CEO, CapitaMalls Asia was based in China from 2001 to 2014. Lee Chee Koon Before Mr. Lee's current role, he was appointed as The Ascott Limited's Deputy CEO in February 2012 and was con-currently its Managing CEO, The Ascott Limited Director for North Asia. Prior that, he was a VP in the office of CapitaLand's President from February 2007. Before joining CapitaLand, Mr. Lee was with the Administrative Service in the Singapore Civil Service, serving in various capacities with the Ministry of Trade and Industry, Ministry of Finance and Monetary Authority of Singapore.
Source: Company
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Daiwa’s Asia Pacific Research Directory HONG KONG SOUTH KOREA Takashi FUJIKURA (852) 2848 4051 [email protected] Sung Yop CHUNG (82) 2 787 9157 [email protected] Regional Research Head Pan-Asia Co-head/Regional Head of Automobiles and Components; Automobiles; Kosuke MIZUNO (852) 2848 4949 / [email protected] Shipbuilding; Steel (852) 2773 8273 Mike OH (82) 2 787 9179 [email protected] Regional Research Co-head Banking; Capital Goods (Construction and Machinery) John HETHERINGTON (852) 2773 8787 [email protected] Iris PARK (82) 2 787 9165 [email protected] Regional Deputy Head of Asia Pacific Research Consumer/Retail Rohan DALZIELL (852) 2848 4938 [email protected] SK KIM (82) 2 787 9173 [email protected] Regional Head of Product Management IT/Electronics – Semiconductor/Display and Tech Hardware Kevin LAI (852) 2848 4926 [email protected] Thomas Y KWON (82) 2 787 9181 [email protected] Chief Economist for Asia ex-Japan; Macro Economics (Regional) Pan-Asia Head of Internet & Telecommunications; Software – Internet/On-line Game Junjie TANG (852) 2773 8736 [email protected] Kevin JIN (82) 2 787 9168 [email protected] Macro Economics (China) Small/Mid Cap Jonas KAN (852) 2848 4439 [email protected] Head of Hong Kong and China Property TAIWAN Cynthia CHAN (852) 2773 8243 [email protected] Rick HSU (886) 2 8758 6261 [email protected] Property (China) Head of Regional Technology; Head of Taiwan Research; Semiconductor/IC Design Leon QI (852) 2532 4381 [email protected] (Regional) Banking (Hong Kong/China); Broker (China); Insurance (China) Christie CHIEN (886) 2 8758 6257 [email protected] Anson CHAN (852) 2532 4350 [email protected] Banking; Insurance (Taiwan); Macro Economics (Regional) Consumer (Hong Kong/China) Steven TSENG (886) 2 8758 6252 [email protected] Jamie SOO (852) 2773 8529 [email protected] IT/Technology Hardware (PC Hardware) Gaming and Leisure (Hong Kong/China) Christine WANG (886) 2 8758 6249 [email protected] Dennis IP (852) 2848 4068 [email protected] IT/Technology Hardware (Automation); Pharmaceuticals and Healthcare; Consumer Power; Utilities; Renewables and Environment (Hong Kong/China) Kylie HUANG (886) 2 8758 6248 [email protected] John CHOI (852) 2773 8730 [email protected] IT/Technology Hardware (Handsets and Components) Head of Hong Kong and China Internet; Regional Head of Small/Mid Cap Helen CHIEN (886) 2 8758 6254 [email protected] Kelvin LAU (852) 2848 4467 [email protected] Small/Mid Cap Head of Automobiles; Transportation and Industrial (Hong Kong/China) Brian LAM (852) 2532 4341 [email protected] INDIA Punit SRIVASTAVA (91) 22 6622 1013 [email protected] Transportation – Railway; Construction and Engineering (China) Jibo MA (852) 2848 4489 [email protected] Head of India Research; Strategy; Banking/Finance Saurabh MEHTA (91) 22 6622 1009 [email protected] Head of Custom Products Group Thomas HO (852) 2773 8716 [email protected] Capital Goods; Utilities
Custom Products Group SINGAPORE Ramakrishna MARUVADA (65) 6499 6543 [email protected] PHILIPPINES Bianca SOLEMA (63) 2 737 3023 [email protected] Head of Singapore Research; Telecommunications (China/ASEAN/India) Utilities and Energy Royston TAN (65) 6321 3086 [email protected]
Oil and Gas; Capital Goods David LUM (65) 6329 2102 [email protected] Banking; Property and REITs Shane GOH (65) 64996546 [email protected] Small/Mid Cap (Singapore) Jame OSMAN (65) 6321 3092 [email protected] Telecommunications (ASEAN/India); Pharmaceuticals and Healthcare; Consumer (Singapore)
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