CapitaLand Investment Limited: Born to fly

•   Re-Initiate with BUY rating, TP S$4.00, offering 20% upside 

•   Unique capital efficient business model that can take advantage of and grow through market cycles

•   Managed REITs well positioned to grow; target to ramp up funds under management to S$100bn by 2024 

•   Lodging arm to return to the black as international borders re-open

Initiate with BUY, TP: S$4.00, implies 20% upside. We re-initiate coverage of CapitaLand Investment Limited (“CLI”) with a target price of S$4.00, pegged to its sum of the parts valuation. Catalysts that we see emerging are (i) launch of new fund products and REIT acquisitions, with an aim to grow funds under management (FUM) to S$100 billion by 2024, up 19% from 2021 and (ii) rebound in operational performance from its lodging business. These are expected to drive 3-year net profit CAGR by 12% during FY21-24F. 

Leading Asian real estate manager with ability to acquire across business cycles. CLI is an asset and capital efficient company with a scalable fee-related earnings (“FRE”) and Fund AUM (“FUM”) platform for growth. CLI’s private funds and REITs complement each other in terms of acquisition strategy. With diverse real estate strategies ranging from opportunistic, value-add to core investments, we see CLI leveraging on opportunities during market upcycles and downcycles. Its REITs and private funds can be active across all real estate cycles.

Lodging business roaring back to profitability. Ascott Limited’s global footprint is well placed to leverage on multi-year recovery of the hospitality sector in coming years. On top of robust growth in its operational footprint to 160,000 units by 2023, we see a turnaround in cashflows, as reopening of international borders is expected to drive the lodging business back to profitability. 

Valuation:

Our valuation is based on sum-of-the-parts of CLI’s various businesses. We derive a target price of S$4.00.

Key Risks to Our View:

Falling capital values and inability to grow FUM.