DBS Group Research on Monday (Jan 3) reinitiated coverage on real estate manager CapitaLand Investment (CLI) 9CI : 9CI 0%with a "buy" call and a target price of S$4, which represents a potential upside of 17 per cent from the counter's trading price of S$3.41 as at Dec 31.

Shares of CLI were trading at S$3.49, up S$0.08 or 2.4 per cent, as at 4.24 pm on Monday.

In its report, the DBS research team highlighted CLI's positive performance since its demerger.

This is given how the stock's share price has climbed by about 18 per cent from the day of its listing and now trades at 1.2 times price to net asset value (P/NAV) - which is about a 40 per cent premium to the average 0.7 times P/NAV that CapitaLand traded over the past 5 years.

"The stock has also closed the gap with listed real estate investment managers, which average about 2.5 times P/NAV," DBS noted.

The re-initiation comes as DBS sees catalysts emerging for CLI to drive a 3-year net profit compound annual growth rate (CAGR) of 12 per cent over FY2021 to FY2024.

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It is expecting CLI's overall revenues to grow by 10 per cent in its financial year of 2022 (FY22F), mainly on the back of "robust growth" in fees from funds under management (FUM) as the group looks to add more private equity fund products to its portfolio.

Potential catalysts include the launch of new fund products and real estate investment trust (Reit) acquisitions, with the group's aim to grow FUM to S$100 billion by 2024, up 19 per cent from 2021.

In DBS' view, CLI's managed Reits remain on an acquisition growth path in the coming years. It also likes CLI for its "unique business model" of being a manager of both private funds and Reits, which enables the group to be active across business cycles and make opportunistic acquisitions.

The research house estimates that CLI, through its Reits and private equity funds, will grow its total FUM to close to S$100 billion by 2024 from its current FUM of S$53.4 billion as of 3Q FY2021.

It has also assumed in its forecasts that the group will grow its assets under management (AUM) by S$4 billion per year to reach a targeted S$36 billion by end-2023.

Across CLI's portfolio of Reits alone, DBS is assuming AUM will grow by S$3 billion until 2024, with 80 per cent of the acquisition value to come from Ascendas Reit, CapitaLand Integrated Commercial Trust, and Ascott Residence Trust.

The research team also expects a recovery of CLI's lodging business, The Ascott, to drive a turnaround in cashflows for the group following the reopening of international borders.

It projects the lodging sector's revenue per available unit to recover by 40 per cent year on year in FY2022, and about 29 per cent in FY2023 to reach 70 per cent and 90 per cent of pre-Covid levels, respectively.

"With domestic travel starting since H1 2021 and planned cross-border travel to pick up steam through the course of 2022, we project operational improvements towards pre-Covid levels come FY2022 to FY2024," said the team.

While DBS has predicted strong growth for CLI overall, one risk highlighted by its team includes higher 10-year yields, which could potentially drive real estate capitalisation rates higher. This may result in a potential drop in real estate values, which may in turn have an impact on CLI's overall FUM and its fee income business, it added.

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