Short-term Headwinds But There Should Still Be A Growth Story In 2024
CLI reported a weaker-than-expected 3Q23 business update and, with the exception of its lodging business, guided for a difficult medium-term outlook with fair value losses and impairments likely at its 2023 annual results in Feb 24. In the longer term, CLI’s slight pivot away toward Southeast Asia and India with its inaugural wellness & healthcare fund should provide an interesting avenue of growth. Maintain BUY. EPS is lowered for 2023-25, and target price reduced to S$3.90 (previously S$4.25).
WHAT’S NEW
• Working through tough times. CapitaLand Investment (CLI) reported a difficult 3Q23 business update with revenue of S$2.1b (-3% yoy) that was below estimates, making up only 60% of our full-year numbers. On the analyst call, management guided for a difficult medium-term outlook, with the exception of lodging management which continues to perform strongly due to robust travel trends globally.
• A resilient business in parts but dragged down by lack of capital recycling. 9M23 demonstrated the resiliency of CLI’s business as seen by its recurring fund management fees which grew by 9% yoy to S$272m. Largely as the result of a stagnant market in China, CLI remains well short of its annual capital recycling target of S$3b, achieving S$1.2b ytd. The company commented that it remains “tough to do deals” and with unequal economic growth across their markets, the outlook remains decidedly mixed in 2024. Nevertheless, CLI has raised S$3.5b ytd in 2023 (42% higher than the whole of 2022) and currently has S$9b of dry powder for deployment.
• A mild change in strategic direction. CLI’s historical focus has been on Singapore and China. However, one of the interesting comments during the analyst call was CLI highlighting an adjustment in geographic focus beyond its two core countries and towards Southeast Asia and India as it sees strong growth opportunities in these markets. For example, CLI’s new fund in partnership with Thailand’s Pruksa Holding, with initial close of S$350m, looks to tap into the wellness and healthcare sector in Southeast Asia.
• Fair value gains and losses highly likely for this year. Management commented that there is a high likelihood for fair value losses for 2023. We highlight that Frasers Property Limited issued a profit warning in Oct 23 related to its property in UK and Europe, and with valuers taking guidance from each other, CLI warned that its properties in China, Australia, US and Europe could be affected.
