Brokers' take: Goldman Sachs, Morgan Stanley start coverage on CLI with positive ratings

GOLDMAN Sachs Equity Research and Morgan Stanley Research have started coverage on CapitaLand Investment Management (CLI) 9CI : 9CI 0%at "buy" and "overweight" with the respective price targets of S$3.64 and S$3.75 since the real estate investment manager commenced trading on the Singapore Exchange on Monday.

In an initiation report dated Sept 21, Goldman analysts said their target price - which is 1.9 times their projection for FY2022 net asset value - is justified as return on equity (ROE) is projected to improve to 7 per cent over FY2022 to FY2023, versus the 4 per cent average over the past three years.

This valuation also remains significantly below CLI's peer average of 2 times, they noted.

Goldman Sachs believes CLI is set to benefit from improved earnings visibility and margins post CapitaLand's restructuring. This is due to the absence of a more volatile development segment, and the "broadly recurring" nature of the company's other earnings from management fees and real estate investment.

"Coupled with operational improvements and recovery from Covid-19, we expect higher PATMI (profit after tax and minority interest) margins of 55 per cent in FY2022 to FY2023, versus the five-year average of 12 to 20 per cent," said the analysts.

Further catalysts include funds under management growth, effective capital redeployment and operational improvement, they added.

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Morgan Stanley's price target embeds a 20 times multiple for CLI's fee earnings and a 10 per cent holding company discount, and implies a 27 per cent upside to the stock's opening price of S$2.95.

The research house views CLI as a "deeply undervalued asset manager" whose strengths, such as its Singapore real estate investment trust platform and strong property management fee contributions, have been overlooked by the market.

The real estate investment manager has also been named Morgan Stanley's top pick with an "attractive" industry view.

"(CLI's) private equity fund management business has lagged peers on growth and profitability, but it is starting to originate more relevant and profitable fund products that better appeal to investors," stated Morgan Stanley in a report issued on Monday.

"Access to the broader CapitaLand group's assets through a right of first refusal agreement will support CLI's growing assets under management, in our view, which could be further accelerated by platform acquisitions that management has stated it is keen on."

Ahead of CLI's listing, UOB Kay Hian (UOBKH) had issued a Sept 17 report valuing CLI with a sum-of-the-parts price target of S$3.64. UOBKH used global comparable companies such as Lendlease and ESR Cayman for the investment management and lodging segments.

UOBKH analyst Adrian Loh said he likes CLI for its scalability through fee-related earnings and growth potential in the company's funds management business.

The research house remains "market weight" on Singapore's property sector.

Shares of CLI were up S$0.11 or 3.5 per cent at S$3.27 prior to the midday trading break on Wednesday.

READ MORE: 

• CapitaLand Investment shares debut at S$2.95 on the Singapore Exchange
• CapitaLand restructuring: A look back on some IR initiatives that worked
• Shake-up of China's property sector could deliver opportunities for CapitaLand