In a research report published on 4 October, Macquarie Research (MQ) gave reasons for their Outperform rating on the stock and their 12-month target price of $3.60…

Key points

•    Smaller near-term upside after stronger-than-expected debut since relisting.
•    MQ believes insider share purchases and an increased focus on its private equity business are reasons to stay invested.
•    Reiterate Outperform. MQ discusses potential upside surprise that could drive the stock to their bull case valuation


Easy gains captured; Potential upside surprise for the next leg up 

While the stronger-than-expected debut since relisting could limit near-term upside, MQ sees reasons to stay invested in CapitaLand Investment Limited (CLI). 

Meaningful insider purchases since relisting reflects confidence in its outlook, and MQ sees the introduction of senior hires to spearhead its private equity business as positive. 

MQ reiterates Outperform with a target price of S$3.60. With a smaller 12% total share return to MQ’s base case target price, MQ evaluates a potential upside surprise that could drive the next leg up to their bull case valuation. 


Reasons to stay invested; Bull case valuation 

Insider purchase and new hires. MQ sees meaningful insider share purchases since relisting and an increased emphasis on its private equity business as reasons to stay invested. 

CLI Chairman Mr. Miguel Ko purchased 700k shares at S$2.93 on its listing day and another 600k shares at S$3.43 on 23 Sept to reflect his confidence in the company. The introduction of two senior hires (Mr. Simon Tracey and Mr. Patrick Boocock) also seeks to address market reservations over CLI’s limited track record in the private equity space. 

Upside potential for fund management. MQ believes the stock’s stellar performance since relisting has left smaller near-term upside. To attract a further valuation uplift, MQ believes CLI would need to deliver upside surprise to growth plans. MQ believes its fund management platform has the biggest potential for this with its increased business focus. The possible unveiling of targets for its private equity business next year is a catalyst to watch out for. 


Scenarios for further upside; Bull case valuation. Assuming CLI achieves its 2024 asset under management target of S$100 billion ahead of schedule along with better profitability, MQ believes the market could provide a “non-linear” valuation uplift (earnings per share increase + higher multiples) for the stock. 
MQ stress tested their 2022 base case valuation and estimate a bull case valuation of S$4.46. This assumes higher fees of 1% per dollar assets under management and 65% earnings before interest, tax, depreciation and amortisation (EBITDA) margin for new funds enroute to S$100 billion assets under management. MQ also foresees a higher 25x price-earnings of its fund platform with no discount on its relative net asset value (RNAV) to reflect growing investor confidence. 


Action and recommendation

MQ has an Outperform rating on CapitaLand Investment and a 12-month target price of $3.60 based on a RNAV methodology. MQ sees reasons to stay invested despite its stellar performance.