Brokers’ take: UOBKH lowers CLI target to S$3.90 on earnings downgrade, valuation drop
Mia Pei
UOB Kay Hian (UOBKH) cut its target price for CapitaLand Investment (CLI) to S$3.90 from S$4.25, after CLI posted weaker-than-expected Q3 results in a business update on Thursday (Nov 9).
The trimmed target price was a result of CLI’s potential fair value loss and earnings downgrade, said UOBKH analyst Adrian Loh in a report on Friday.
Loh quoted CLI’s management on the highly likely fair value losses for 2023, given that CLI’s comparable companies are experiencing declines in enterprise values (EV), leading to lower ratios between EV and earnings before interest, taxes, depreciation and amortisation (Ebitda).
“We highlight that Frasers Property issued a profit warning in October 2023 related to its property in UK and Europe, and with valuers taking guidance from each other, CLI warned that its properties in China, Australia, US and Europe could be affected.”
Loh also lowered earnings estimates for FY2023 to FY2025 by 7 per cent to 14 per cent to factor in higher interest costs in 2023 and 2024, lower Ebitda margins and revenue growth for the fund management business, as well as a slower recovery of its China properties.
The target price cut came with a maintained “buy” call, as Loh highlighted that CLI’s closing price on Thursday at S$3.03 was “inexpensive” at a one time multiple to FY2024 book value estimate, especially compared with its peak price-to-book ratio of 1.4 times for 2022.
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Shares of CLI were trading up 0.3 per cent or S$0.01 at S$2.95 as at 11.33 am on Tuesday.
“In the longer term, CLI’s slight pivot away towards South-east Asia and India with its inaugural wellness and healthcare fund should provide an interesting avenue of growth.”
Loh noted that CLI is shifting focus beyond its core countries of Singapore and China, and has partnered with Thailand’s Pruksa for a new fund to tap into the region’s wellness and healthcare sector, with an initial close of S$350 million.
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“The company struck a brighter note in India where it is seeing a lot of investor interest, strong leasing momentum and positive rental reversions overall,” added Loh, noting that CLI remains cautious on China and predicts negative rental reversions in its retail sector.
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