The Positives
+ Recurring income from fees and investment property to provide stable cashflow. Fund management income at $76.5mn was 54.2% higher YoY, due to the higher AUM (REITs and PR Funds) of $74.8mn post-combination with ASB.
+ Commercial and industrial segments resilient for now. These two segments make up 21% and 9% of FY19’s EBIT respectively and the number of tenants expected to require tenant support is far less compare to the retail tenants.
+ Strong balance sheet with S$13bn in cash and undrawn facilities. Net-debt-to-equity of 0.64x corresponds to c.S$2.4bn debt headroom. Currently, CAPL has no covenants attached to their loans, which the management credits to their strong position and good relationships. Lenders continue to keep credit lines open – CAPL managed to secure S$400mn by way of two bilateral green loans at lower rates, lowering the Group’s overall implied interest rate from 3.2% to 3.0%.
+ Robust recover in residential sales in China. All 288 units at La Botanical (Xi’an) were sold out withing 4 days after they were launch on 24 March 2020. Residential sales have picked up across China, since sales offices reopened, with units selling at higher prices than units in the same launch.
The Negatives
– Lodging and retail segments most impacted. The restrictions on travel and mobility has impacted these two segments the most. As at the end of April 2020, 52 out of a total of 485 properties owned or operated by the Group remained closed. The management commented that this is expected to put pressure on occupancy levels and RevPAU, which will in turn impact fee income for CAPL’s operated properties, and rental income for SR on CAPL’s balance sheet. Despite the long-staying clientele in SR, CAPL’s 1Q20 RevPAU’s fell 22%. 1Q20 shopper traffic fell by 10.8% and 52.0% YoY in SG and China.
– Vietnam residential inventory running low, hampered by longer approvals process. While the group remains positive on Vietnam’s outlook, the longer approval processes has hindered the Group’s ability to replenish the pipeline.
Outlook
The Group has elected to adopt half-yearly reporting and will be conducting valuations on an annual basis instead of semi-annually.
In China, all 15 malls that were closed during the nationwide lockdown in February have reopened. As at end-April, 85% of tenants have resumed operations. Trades that tend to draw crowds such as entertainment, cinemas and enrichment centres have not gotten the relevant approvals to commence operations. However, the Group has shared that shoppers are still cautious, and footfall has not recovered. In Singapore, c.25% of tenants categorised as essential services remain open during the circuit breaker period (7 April to 1 June 2020).
The development segment experienced delays in construction timelines and an absence of sales due to closure of showrooms during the lockdown period. In Vietnam, domestic and international travel restrictions have resulted in delays in handovers as buyers are prevented from finalising documentation.
Revaluation risk may arise in this uncertain environment. While CAPL’s strong cash position means that the Group is not under any pressure to liquidate assets, lower asset values may reduce the pace of capital recycling. Instead, the management is on the lookout to pick up counter-cyclical assets or assets/businesses at good valuations. However, CAPL remains committed to their annual divestment target of S$3bn. To date the Group has made gross investments of S$447mn and gross divestments of S$373mn.
Maintain BUY with lower TP of S$3.94 (prev. S$4.20).
We lower our FY20e revenue by 14.1% as we factor in the lower earnings from the rental rebates offered and weaker lodging revenues. Our TP, which is based on a 20% discount to RNAV, was cut by 6.2% from $4.20 to $3.94, after incorporating the lower revised valuations for the REITs.
