1Q22 metrics in line, stronger RevPAU recovery

1Q22 performance is tracking in line to our estimates, as CLI maintained
a flat funds-under-management (FUM), while both fee-related earnings
(FRE) and the real estate investment business (REIB) grew 28% YoY.
Geopolitical risks are high and performance from its China assets could be
lower in 2Q22, but we maintain our view of c.7%/c.20% FUM/FRE growth.
We see strong earnings momentum supporting valuation, which remains
undemanding vs peers, given better-than-expected (APAC-driven) earnings
trajectory. We see accelerating FUM growth, expanding FRE, and faster
conversion of on-balance sheet assets to FUM creating earnings upside.
Our SGD4.30 SOTP-based TP offers 11% upside. BUY.

Growth in fee income, metrics improving

CLI reported 1Q22 revenue of SGD598m (+16% YoY), driven by
improvement in investment properties under its REIB, which delivered
SGD403m in revenue (+28% YoY). This was underpinned by a 17% YoY growth
in fee income (fund management: +28% YoY, lodging management: +31%
YoY, and property management: -4% YoY). We expect a stronger 2H22,
driven by higher property churn, and as the recovery in its lodging business
(which added 9% YoY in units and +71% YoY in RevPAU in 1Q22), gains
traction on the back of opening borders, and improving margins, which
could rise to 40-50% (from 30+% currently).

Better FUM performance, China remains key

FRE rose 28% YoY in 1Q22, with stronger performance from its private funds
(+127% YoY) offsetting its REITs (-5% YoY). This was underpinned by eventdriven fees, at 36% of total FRE (vs 18% for FY21), which helped lift
FRE/FUM ratio to 51bps (vs 50bps in FY21/46bps in 9M21). CLI had exited
the Vietnam value-add fund (which owns Capital Place) to realise a c.34%
IRR, even as FUM was steady at SGD86m. Geopolitical risks have risen and
are headwinds to FUM performance, but we see further launches of higher
fee-generating funds improving FUM performance, as management eyes
opportunities in China, real estate credit and data centres.

Strong balance sheet, eyeing inorganic growth

Net gearing stayed at 48% in 1Q22 and balance sheet metrics remain strong
at 6.2x interest cover, and 2.6% borrowing cost. Its fixed-rate debt is set
to rise to c.86% (from 59% currently) considering the RMB-denominated
debt exposure and recent deals. We see ROE growth backed by rising fund
and lodging management fees, further securitisation of on-balance sheet
assets, and scaling down of its share of capital in raising new FUM. Upside
surprise could arise as management targets inorganic growth from listed
and private equity platforms, while maintaining its APAC concentration.