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Analysts stick to 'buy' on CapitaLand

Its sale of 20 China malls seen by DBS Research as a 'positive catalist' to invest in higher-yield properties; RHB, CIMB, OCBC also give the thumbs up

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Stock watchers were happy campers on last week's news that CapitaLand is dropping 20 malls from its retail asset portfolio in China.

Singapore

STOCK watchers were happy campers on last week's news that CapitaLand is dropping 20 malls from its retail asset portfolio in China.

RHB Research Institute Singapore upgraded the stock to a "buy" call, from its previous "neutral" stance, in a note on Monday morning.

Meanwhile, other analysts dug in and reiterated earlier "buy" positions, with DBS Group Research putting out a report of its own on Monday too.

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CIMB analyst Lock Mun Yee and OCBC Investment Research's Eli Lee had also repeated the "buy" cry in separate flash notes last Friday, after CapitaLand's announcement.

CIMB stuck to a target price of S$4.25, and OCBC to its fair-value estimate of S$4.13. RHB lifted its target price from S$3.90 to S$4.20.

But DBS was the most upbeat on where the share price could go for the property stock. Analysts Derek Tan and Rachel Tan noted that their target of S$4.35 was "ahead of consensus average", which now stands at S$4.24.

Still, they said that they believe this price "is achievable, given expectations that the group will deliver a robust set of results on the back of strong revaluation gains for its commercial portfolio, and locked-in sales for its residential portfolio".

They called the mall sale a "positive catalyst" and a "good opportunity" that will top up the CapitaLand coffers with capital to invest in higher-yield properties with a longer growth runway.

"Strategy-wise, it appears that the group has chosen to stay out of the current euphoria in the Singapore residential market and focus on investing in its core competencies and recycling its portfolio assets," the DBS team added.

RHB analyst Vijay Natarajan echoed this view. "One of CapitaLand's concerns has been its limited Singapore residential inventory... with the market at the cusp of a potential recovery," he said.

"While we note that its land bank is running low, we believe its prudent approach makes sense amidst the current intense completion, which has driven up the land costs by 20 per cent to 40 per cent.

"We expect the company to continue to selectively bid for residential land and potentially acquire one or two sites in 2018."

CapitaLand's divestment, which is expected to yield a net gain of S$75 million, came as part of a decision to shift its focus to first-tier and second-tier cities in the Chinese market. And it was a move cheered by analysts.

CIMB's Ms Lock said of the group's prospects: "Not only would the reconstituted portfolio offer stronger clustering effect, the sharper geographic focus would enable better resource allocation and economies of scale as well as enhance its capacity to capture growth opportunities in China."

Shares of CapitaLand closed on Monday at S$3.72, up seven cents or 1.92 per cent.