• 20% dividend hike to 12c/share for FY17.
• Replenishing of land bank in Singapore with en bloc purchase of Pearl Bank.
• Lower residential sales value in China partially offset by higher sales in Vietnam.
• Active portfolio reconstitution with realised divestment gains tripled YoY at S$318mn.
• Maintain Accumulate with unchanged TP of S$4.19.

The Positives

+ 20% dividend hike to 12c/share for FY17. This is the highest percentage increase since 2009, when dividends were raised from 5c to 6c/share.

+ Replenishing of land bank with en bloc purchase of Pearl Bank. Acquisition price of S$728mn, plus a lease top-up premium of S$201mn translates to a total cost of S$1,515psf for the 82,376 sq ft land site. The Group plans to build an 800-unit development on the site. We estimate breakeven cost to be close to S$2,000/psf. We note that the closest comparison in the vicinity, 5-year old Dorsett Residences beside Outram Park MRT has traded in the S$1800-$2500/psf over the last 5 years.

+ Lower residential sales value in China partially offset by higher sales in Vietnam. Due to less available units for sale in China, FY17 contracted sales value dropped by c.15% YoY (or c.S$570mn). This is partially offset by a c.60% jump (or c.S$180mn) in contracted sales value in Vietnam. Contracted sales value in Singapore remained stable mostly due to bulk sale of The Nassim.

+ Active portfolio reconstitution with realised divestment gains tripled YoY at S$318mn. S$2.6bn divestments were made in FY17, with capital redeployed into S$7.3bn worth of new assets, including more noticeably Asia Square Tower 2 and Golden Shoe Car Park redevelopment. The Group has now set a target to recycle S$3bn of investment properties annually.

+ Efficient capital management with lowered financing costs and extended debt maturity. Despite fears of rising interest rates, the Group managed to achieve a slightly lower all-in interest rate of 3.2% (down 0.1pps YoY) with slightly extended debt maturity profile of 3.4 years (vs 3.3 years in FY16).

+ Stable retail portfolio in China. Same-mall tenant sales in China accelerated to 7% YoY from 3.4% in FY16, excluding master-leased mall, supermarkets, and department stores.

+ RevPAUs for serviced residences seeing recovery in key markets. Total portfolio RevPAU grew 1% in FY17, led by key regions in Europe, South-east Asia and China. This is an improvement from the -4% YoY drop in FY16.

The Negatives

–  Tenant sales growth for Singapore malls (40% of total shopping mall portfolio) remains muted. Same-mall tenant sales stayed muted with a 0.9% YoY growth vs 1.4% growth in FY16. This is despite the Singapore general retail sales index rebounding in 2017 (average 1.8% YoY ex-Motor vehicles).

–  Slowdown in China residential sales as a result of less units available for sale. The 15% fall in contracted sales value was due to less units available for sale. Despite this, a healthy 93% of launched units was sold as at 31 Dec 2017.

Outlook

With 85% of CAPL’s assets being investment properties (predominantly in Singapore and China) contributing to recurring income, CAPL’s earnings outlook remain stable. RMB10.3bn worth of China residential sales are expected to be completed and handed over in FY18, which will provide further support to earnings over the next FY. We expect the three new Raffles City integrated developments in China which opened in FY17 to boost recurring income growth in FY18 as occupancy improves. While the retail sector in Singapore remains sluggish, tenant sales in China has stabilised. The office and service residences segments have shown signs of improvement and are expected to lead the recovery in recurring income.

Maintain Accumulate with an unchanged TP of S$4.19.

We maintain our Accumulate rating with an unchanged target price as we roll forward our forecasts to FY18 and beyond. With a strong base of stable recurring income, CAPL’s asset light management contract strategies for its retail and serviced residence segments also enables it to accelerate network and fee revenue growth. We like CAPL’s quality of earnings which have become more recurrent in nature.

Figure 1. RNAV table

Figure 2. CAPL trades at lower than post-GFC average Price/NAV of 0.89