Brokers’ take: CGS-CIMB initiates CapitaLand Investment with ‘add’ on value of fund management business

CGS-CIMB is positive on CapitaLand Investment (CLI) post restructuring as it offers investors greater earnings visibility and higher return on equity.

In a report on Monday (May 23), analyst Lock Mun Yee initiated coverage on the property play with an "add" call and target price of S$4.59, noting that the successful transformation of CLI's fund management business could further boost its share price.

The target price is based on a 10 per cent discount to the brokerage's estimates for CLI's revalued net asset value, which Lock sees as "fair" given that 34 per cent of CLI's gross asset value comes from its stakes in listed real estate investment trusts (Reits) and is accessible via the public market.

While CLI is trading at 1.15 times its estimated book value in 2022, which is significantly lower than its peers' average at 2.53 times, the analyst expects the gap should narrow once the group recycles its assets, moves towards a more asset-light model and accelerates the growth of its private funds business.

Shares of CLI were trading at S$3.84 at the midday break on Tuesday, down S$0.03 or 0.8 per cent.

Lock estimates CLI's revenue will grow 8 per cent in FY2022 and 5.9 per cent in FY2023, on higher fee and lodging management income and locked-in divestment gains from its capital-recycling activities to date.

The analyst expects CLI can reach its target of expanding its funds under management to S$100 billion by 2024, driven by third-party fundraising, a visible recycling pipeline of directly-held investment properties and its strong balance sheet.

Lock said CLI's fee-related business - which generates fees from fund management, lodging management and property management activities across its property portfolio - offers high earnings visibility amid steadily growing Reit management fees and private funds.

Meanwhile, its real estate investment business - which generates recurrent dividend and rental income from its stakes in its listed Reits, private funds and directly-held properties - can likely supply properties to CLI's funds and increase its funds under management.

CLI also has room to acquire pre-stabilised or development assets with its strong cash reserve and undrawn facilities on hand, to divest into its private funds and be converted into funds under management in the future, the analyst said.

As for its lodging management platform, the asset-light segment will likely see a boost in its portfolio revenue per available unit amid a recovery in the hospitality industry as borders and economies reopen globally.

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