Brokers' take: UOBKH, Maybank initiate 'buy' on CapitaLand Investment

UOB Kay Hian (UOBKH) and Maybank Securities have both initiated coverage on CapitaLand Investment (CLI) with "buy" calls and target prices of S$4.02 and S$4.30 respectively.

According to a research report on Thursday (Feb 10), UOBKH analyst Adrian Loh sees potential for growth to continue in CLI's fund management platform due to its "impressive" track record and role as one of Asia's largest real estate investment managers (Reim).

Loh forecasts a 39 per cent increase in earnings over the 2021 to 2023 period on the back of funds under management (FUM) growth and normalisation of investment property earnings.

CLI's FUM is expected to reach its target of S$100 billion by 2024, indicating a 6.4 per cent compound annual growth rate (CAGR) over the 2020 to 2024 period, the analyst said.

In Loh's view, the Reim is a proxy to reopening after the Covid-19 peak as it has about 83 per cent of its assets under management in traditional real estate segments such as office, lodging and retail. Following a recovery in lodging due to exposure to long-stay assets, and as global travel resumes, the analyst anticipates an upside for CLI.

However, Loh said CLI's valuations appear inexpensive compared to its global and regional peers with a price-to-net asset value ratio of 1.4 times and an enterprise value to earnings before interest, taxes, depreciation, and amortisation ratio (EV/Ebitda) of 21.1 times.

In contrast, Maybank sees CLI's valuation as attractive compared to its global peers, at 1.1 times price-to-book ratio and 13 times expected EV/Ebitda.

Maybank's target price of S$4.30 is also significantly higher than UOBKH as analyst Chua Su Tye views CLI's valuation as compelling with its sharpened focus to drive FUM and fee income growth.

The target price implies a price-to-book ratio of 1.25 times for FY2022. Chua said it is justified as he estimates return on equity (ROE) to improve to 10 per cent by FY2023, compared with the average ROE of 6 per cent for the past 3 years.

In a separate research note on Wednesday, Chua said CLI is "forging a new growth path" and he sees significant room for earnings growth and multiple expansion.

Like Loh, Chua believes CLI has a strong base to accelerate its FUM growth due to its entrenched Reim platform, its global reach of private capital partners and its access to CapitaLand's assets.

He projects FUM fee income to increase by an 18 per cent CAGR by FY2023, supported by accelerated third-party fundraising and a recovery in its lodging business alongside a global reopening.

He added that he sees potential for CLI to narrow the performance gap of its private equity fund management business to its peers as it focuses on growing new economy exposure, streamlining its balance sheet and driving a higher FUM fee rate.

In a report on Wednesday, Jefferies also initiated "buy" on CLI with a target price of S$4, citing its growth of private funds and lodging business, recovery of pandemic-hit sectors and pivot to new economy assets as factors underpinning its future growth.

CLI shares ended Thursday up 2.47 per cent or S$0.09 at S$3.74.