Yahoo Finance Maybank Securities starts CapitaLand Investment at 'buy' with TP of $4.30
According to Chua’s estimates, CLI’s FUM stands at 22% of CLI’s FY2022 EBITDA and 19% of his valuation.
Maybank Securities analyst Chua Su Tye has initiated coverage on CapitaLand Investment (CLI) with a “buy” recommendation and a target price estimate of $4.30.
The target price implies an FY2022 price-to-book (P/B) of 1.25 times, which is justified by return on equity (ROE) improving to 10% by the FY2023 compared to the average of 6% in the past three years, says Chua.
CLI is one of the world’s largest real estate investment managers (REIMs) with assets under management (AUM) of $120.8 million.
The REIM emerged from CapitaLand’s restructuring when the latter proposed a restructuring of its business to consolidate its investment management platforms and lodging business.
In his Feb 9 report, Chua says he sees “significant room for earnings upside and multiple expansion, as it drives funds under management (FUM) growth, improves capital efficiency, and builds up fund performance track record”.
According to Chua’s estimates, CLI’s FUM stands at 22% of CLI’s FY2022 EBITDA and 19% of his valuation.
In his report, the analyst views CLI as well-placed to drive FUM growth from $84.3 billion to $100 billion by the FY2024.
“[This will be] backed by an entrenched REIT management platform, global reach of private capital partners, and access to CapitaLand’s assets via a right-of-first-refusal (ROFR) agreement,” he writes.
“Investment properties on balance sheet at $10 billion set to be monetised in three to four years, will provide visible pipeline opportunities for its REITs and private funds,” he adds.
To this end, Chua estimates CLI’s FUM fee income to rise at a compound annual growth rate (CAGR) of 18% through FY2023. He has also forecasted a three-year operating PATMI CAGR of 42%, which is underpinned by accelerated third-party fund-raising and recovery in its lodging business alongside a global reopening.
CLI also has the potential to close the performance gap of its private equity fund management business with its peers.
According to Chua, this can be done with CLI “growing new economy exposure (now at 20% of AUM), some through Ascendas REIT, with headway from $1.4 billion of new logistics and datacentres funds raised in the past 18 months, streamlining its balance sheet by reducing stakes in directly-held properties and funds, and driving higher FUM fee rate, by supplementing its funds management platform with more profitable fund products that are gaining relevance with investors”.
The way he sees it, CLI’s current valuation is “compelling” given its sharpened focus to drive growth in its FUM and fee income contribution.
Catalysts in CLI’s share price include FUM growth, effective capital redeployment and operational improvement, says Chua. On the other hand, CLI faces risks in the event of a slow scaling up of its FUM, poor fund performance, competition, sharper-than-expected rise in interest rates, and weak real estate outlook.
As at 4.27pm, shares in CLI are trading 8 cents lower or 2.14% down at $3.66, or at an FY2022 P/B of 1.0 times and a dividend yield of 2.3%
Photo: CapitaLand
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