R e g i o n a l

M o r n i n g

N o t e s

Thursday, 20 February 2014

BUY (Maintained)

COMPANY RESULTS

CapitaLand (CAPL SP) 4Q13: Shifting Away From Singapore Residential Results were below expectations, due to lower-than-anticipated recognition from residential developments in China and Singapore. CapitaLand is shifting focus away from the Singapore residential segment as property measures weigh on sentiments, with increasing emphasis on mixed development projects and China. Maintain BUY with an unchanged target price of S$3.83, based on 25% discount to RNAV of S$5.11/share. 4Q13 RESULTS Year to 31 Dec (S$m) Turnover

1,085

Yoy % chg (2.3)

3,977

Yoy % chg 20.5

Operating Profit Pre-tax Profit Tax PATMI

52 299 79 143

(80.9) (35.1) 14.0 (45.6)

751 1,354 169 850

(36.5) (10.9) (16.3) (8.7)

Operating PATMI EPS (¢) EBIT by Business Segment CapitaLand Singapore

191 3.4

72.1 (45.2)

528 20.0

42.9 (8.7)

126

(29.3)

479

(6.6)

CapitaLand China

132

10.1

388

18.9

CapitaMalls Asia

252

11.4

744

10.0

Ascott Corporate and others

4Q13

30 (143.1)

280.6 NM

2013

116 72.0

(36.1) (77.6)

Remarks

Share Price Target Price Upside

S$2.91 S$3.83 +31.6%

COMPANY DESCRIPTION CapitaLand and its subsidiaries operate in residential and commercial properties, property fund management, and serviced residences.

STOCK DATA

Higher revenues from all SBUs, particularly from China and CMA

Includes one-off 20% Australand divestment loss of S$121m and impairments of S$165m Remarks Lower contribution from development projects and absence of acquisition fee income for CCT Higher no. of units handed over (3200 vs 1,995 in 2012) Profit from Bedok Residences, post-AEI contribution from CMT malls and revaluation gains Lower portfolio gain and impairment of India assets Loss on divestment of Australand stake, higher forex loss, loss on refinancing of CB and buybacks

Source: CapitaLand, UOB Kay Hian

GICS sector Bloomberg ticker: Shares issued (m): Market cap (S$m): Market cap (US$m): 3-mth avg daily t'over (US$m):

Financials CAPL SP 4,252.1 12,501.3 9,905.1 17.9

Price Performance (%) 52-week high/low

1mth

S$4.01/S$2.75

3mth

6mth

1yr

YTD

(5.2)

(8.1)

(24.8)

(3.0)

0.7

Major Shareholders

%

Temasek Hldgs

40.4

-

-

FY14 NAV/Share (S$)

3.84

FY14 Net Debt/Share (S$)

1.93

RESULTS  Results below expectations. CapitaLand reported 2013 net profit of S$850m, down 9% yoy due to losses related to the divestment of its 20% stake in Australand (S$121m), higher one-off impairments (S$165m) and repurchase of convertible bonds (S$31m). Excluding these and revaluations gains of S$488m, the operating PATMI of S$528m is below our expectations (vs S$596m forecast) mainly due to lower-than-anticipated recognitions from residential developments in China and Singapore.

PRICE CHART (lcy)

CAPITALAND LTD

CAPITALAND LTD/FSSTI INDEX

(%)

110

4.50

100

4.00

90 3.50 80

 The group declared an 8 S cents dividend, up 14% yoy (from 7 S cents in 2012) and translating to a 3% yield (payout ratio of 40%). NAV of S$3.78 per share is up 6.5% yoy.

3.00

70

2.50

60

60 40 20

KEY FINANCIALS Year to 31 Dec (S$m) Net turnover EBITDA Operating profit Net profit (rep./act.) Net profit (adj.) EPS (S$ cent) PE (x) P/B (x) EV/EBITDA (x) Dividend yield (%) Net margin (%) Net debt/(cash) to equity (%) Interest cover (x) ROE (%) Consensus net profit UOBKH/Consensus (x)

Volume (m)

0

2012 3,301 2,064 2,017 1,317 1,317 31.0 9.4 0.8 10.3 2.4 39.9 57.6 4.1 8.8 -

2013 3,977 1,798 1,798 1,185 1,185 27.9 10.4 0.8 11.8 2.7 29.8 41.3 4.0 7.6 -

2014F 2,548 1,245 1,197 725 725 17.1 17.1 0.8 17.0 2.7 28.4 33.0 3.4 4.4 786 0.92

2015F 3,222 1,363 1,311 816 816 19.2 15.1 0.7 15.5 2.7 25.3 25.3 3.6 4.9 817 1.00

2016F 2,825 1,440 1,383 872 872 20.5 14.2 0.7 14.7 2.7 30.8 19.9 3.7 5.0 -

Feb 13

Apr 13

Jun 13

Aug 13

Oct 13

Dec 13

Feb 14

Source: Bloomberg

ANALYSTS Vikrant Pandey +65 6590 6623 [email protected] Terence Khi +65 6590 6614 [email protected]

Source: CapitaLand Limited, Bloomberg, UOB Kay Hian

Refer to last page for important disclosures.

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R e g i o n a l

M o r n i n g

N o t e s

STOCK IMPACT  Focus shifting away from Singapore residential, as property measures weigh on sentiment and as CapitaLand focuses on selling down residential units in light of tightening, with unsold residential assets comprising only 10% of total assets. Stress test indicates that no provisioning is required for a price fall of 10% in property prices. New S$3.7b in capital commitments in 2013 highlights the shift, with only one Singapore residential site at Coronation Road accounting for 10% of total committed investment value, while the largest commitment is the S$1.5b (40%) for the Project Jewel mall at Changi Airport. Opportunistic divestments (Westgate Tower) and unlocking value in key holdings (Australand) will enable CapitaLand to recycle capital to focus on key segments.  Management remains long-term positive on residential demand, although the impact of residential measures is expected to lead to a moderation in demand and pricing. Management hopes that the government will relax supply-side measures, especially pertaining to minimum completion periods. In China, CapitaLand remains positive on the China property market as urbanisation and increased income growth will continue to underpin demand.

Thursday, 20 February 2014

SUM-OF-THE-PARTS (SOTP) VALUATION Asset Valuation Total Investment Properties Book value of Investment Properties Surplus/ (deficit) to book (1) NPV of Development Profits (2) Contribution from Fund Management business (3) Surplus/ (deficit) to book from Listed Subsidiary/Associates (4) Net Book Value (5) Proceeds from potentially dilutive shares (6) RNAV (1+2+3+4+5+6) Fully diluted no. of shares(m) Fully diluted RNAV per share (S$) Target Price (at 25% disc to RNAV) (S$) Source: CapitaLand, UOB Kay Hian

Cap. Value (S$m) 837.5 837.5 0.0 1,817.4 2,685.5 1,010.7 16,067.9 121.2 21,904.96 4,289.78 5.11 3.83

S$3.7B OF INVESTMENTS IN 2013

 Focus for 2014 is to concentrate on strategy execution and project profitability in core markets of Singapore and China, leveraging on their strengths in integrated and mixed use developments. In China, the key six clusters would be Beijing, Shanghai, ChengduChongqing, Guangzhou-Shenzhen and Wuhan. The group intends to improve capital productivity by reducing financing costs, extend debt maturities, recycling matured or noncore assets and redeploy capital to higher return projects. CapitaLand continues to strive towards its medium-term ROE target of 8-12%.  Derisking the Singapore portfolio with strong 2013 residential sales of S$2.4b in Singapore, almost double the S$1.3b in 2012, and 1260 units sold (up from 681 units in 2012). There is limited exposure to the potential downturn in Singapore with residential inventory of 1,600 units at about 10% of CapitaLand’s total assets, while management is responding to market conditions by downsizing residential units to meet market demand. CapitaLand intends to launch Marine Point, the landed residential site at Coronation Road, and also the first condominium plot in Danga Bay, Iskandar Malaysia in 2014. We anticipate that the next phased launch of Sky Habitat in Bishan this year could also see price incentives in order to drive sales.

Source: CapitaLand

ASSETS BY GEOGRAPHY

 Targeting 30% growth in China sales in 2014 with residential sales to reach Rmb12b. 2013 sales value of Rmb8,542m is down 7% yoy, although units sold increased 16% yoy to 7,688 units. Rmb11,242m of units were handed over, up 142% yoy, with 8,365 units delivered to buyers. CapitaLand targets to handover more than 8,000 units in 2014.  Impact of FRS 110 accounting standard will see CapitaLand consolidating CapitaCommercial Trust (CCT), Ascott REIT (ART) and CapitaMalls Malaysia Trust (CMMT). Overall impact is not expected to be significant as banks have highlighted that there will be no impact on lending to the group.

Source: CapitaLand

EARNINGS REVISION/RISK  We have reduced 2014F-15F earnings by 17-26%, mainly deferring the recognition to 2016F. Key risk is a deep and protracted downturn in the property market in Singapore and China. VALUATION/RECOMMENDATION  Maintain BUY and target price of S$3.83, pegged at 25% discount to our RNAV of S$5.11/share. The stock is currently trading at a steep 43% discount to its RNAV and is at an attractive 0.8x P/B. SHARE PRICE CATALYST  Acquisition of mixed development sites, relaxation of property measures and improving sentiment in core markets of Singapore and China.

Refer to last page for important disclosures.

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PROFIT & LOSS Year to 31 Dec (S$m)

BALANCE SHEET 2013

2014F

2015F

2016F

Net turnover

3,977.5

2,548.4

3,222.0

2,825.3

Fixed assets

EBITDA

1,798.0

1,244.7

1,363.0

1,440.0

Other LT assets

0.0

47.5

52.2

57.5

Cash/ST investment

1,798.0

1,197.2

1,310.8

1,382.6

Other current assets

Total other non-operating income

0.0

0.0

0.0

0.0

Total assets

Associate contributions

0.0

0.0

0.0

0.0

ST debt

Net interest income/(expense)

(444.5)

(369.3)

(378.0)

(386.7)

Other current liabilities

Pre-tax profit

1,353.5

827.9

932.8

995.9

Tax

(168.9)

(103.3)

(116.4)

(124.3)

0.0

0.0

0.0

0.0

Deprec. & amort. EBIT

Minorities Preferred dividends

Thursday, 20 February 2014

0.0

0.0

0.0

0.0

Net profit

1,184.6

724.6

816.4

871.6

Net profit (adj.)

1,184.6

724.6

816.4

871.6

Year to 31 Dec (S$m)

2013

2014F

2015F

2016F

Operating

523.0

1,821.3

1,766.3

1,438.6

CASH FLOW

Year to 31 Dec (S$m)

LT debt Other LT liabilities Shareholders' equity Minority interest Total liabilities & equity

2013

2014F

2015F

2016F

1,079.2

1,171.4

1,125.3

1,148.4

20,412.4

20,610.5

20,834.8

21,191.8

5,920.2

7,409.8

8,845.3

9,953.2

8,743.1

7,889.8

7,131.7

6,771.8

36,154.9

37,081.6

37,937.1

39,065.2

1,194.3

1,294.3

1,394.3

1,494.3

3,153.2

3,236.1

3,137.6

3,245.2

11,368.5

11,568.5

11,768.5

11,968.5

1,128.0

1,128.0

1,128.0

1,128.0

16,067.9

16,520.4

17,064.6

17,664.1

3,243.0

3,334.4

3,444.2

3,565.2

36,154.9

37,081.6

37,937.1

39,065.2

2013

2014F

2015F

2016F

KEY METRICS Year to 31 Dec (%) Profitability

Pre-tax profit

1,353.5

827.9

932.8

995.9

EBITDA margin

45.2

48.8

42.3

51.0

Tax

(168.9)

(103.3)

(116.4)

(124.3)

Pre-tax margin

34.0

32.5

28.9

35.2

Net margin

30.8

Deprec. & amort. Associates Working capital changes

50.0

47.5

52.2

57.5

29.8

28.4

25.3

(1,047.4)

(132.1)

(116.1)

(142.4)

ROA

3.2

2.0

2.2

2.3

54.3

902.0

735.2

373.4

ROE

7.6

4.4

4.9

5.0

278.5 (12.3)

Non-cash items

362.2

279.4

278.6

Other operating cashflows

(80.7)

0.0

0.0

0.0

Growth

Investing

696.1

9.8

19.3

28.2

Turnover

20.5

(35.9)

26.4

Capex (growth)

(82.0)

(82.0)

(82.0)

(82.0)

EBITDA

(12.9)

(30.8)

9.5

5.7

0.0

0.0

0.0

0.0

Pre-tax profit

(10.9)

(38.8)

12.7

6.8 6.8

Capex (maintenance)

0.0

0.0

0.0

0.0

Net profit

(10.0)

(38.8)

12.7

Proceeds from sale of assets

Investments

244.2

0.0

0.0

0.0

Net profit (adj.)

(10.0)

(38.8)

12.7

6.8

Others

533.8

91.7

101.3

110.2

EPS

(10.0)

(38.8)

12.7

6.8

Financing

(828.1)

(341.4)

(350.2)

(358.9)

Dividend payments

(493.0)

(272.1)

(272.1)

(272.1)

0.0

0.0

0.0

0.0

39.4

39.3

39.1

38.8

(1,617.0)

300.0

300.0

300.0

0.0

0.0

0.0

0.0

Issue of shares Proceeds from borrowings Loan repayment Others/interest paid Net cash inflow (outflow) Beginning cash & cash equivalent Changes due to forex impact Ending cash & cash equivalent

1,281.9

(369.3)

(378.0)

(386.7)

391.0

1,489.6

1,435.5

1,107.9

5,497.7

5,920.2

7,409.8

8,845.3

31.5

0.0

0.0

0.0

5,920.2

7,409.8

8,845.3

9,953.2

Refer to last page for important disclosures.

Leverage Debt to total capital Debt to equity

78.2

77.9

77.1

76.2

Net debt/(cash) to equity

41.3

33.0

25.3

19.9

4.0

3.4

3.6

3.7

Interest cover (x)

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Thursday, 20 February 2014

Disclosures As of 20 February 2014, the analyst and his/her immediate family do not hold positions in the respective securities recommended in this report. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc (“UOBKHUS”) which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal In transactions in any of these securities. Any such non-U.S. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. http://research.uobkayhian.com MCI (P) 122/03/2013 RCB Regn. No. 198700235E

Refer to last page for important disclosures.

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