Hot stock: CapitaLand shares sink 4.7% after profit warning; analysts remain positive

SHARES in CapitaLand took a beating on Monday, after the property group on Friday warned it would report a loss for the year ended Dec 31, 2020. But analysts seem to be maintaining their recommendations on the counter, which have largely been positive.

RHB analyst Vijay Natarajan told The Business Times (BT) on Monday: "We are not overly concerned about CapitaLand's full-year loss guidance as these are mainly driven by fair value and impairment losses, which are non-cash in nature."

Core operating profit is expected to remain resilient and profitable at S$740-846 million, or 20 per cent to 30 per cent lower than in FY19, Mr Natarajan added. This is in line with his expectations.

The estimated fair value loss, he added, "doesn't come as a surprise, as these pertain to mainly revaluation losses from the group's badly hit hospitality (Ascott) portfolio and retail portfolio".

RHB has maintained its "buy" call on CapitaLand, with an unchanged target price (TP) of S$3.75.

Separately, in a research note on Monday, Lim & Tan Securities noted that CapitaLand's profit warning means that the FY20 consensus profit of S$600 million will not be met and has to be revised down to a loss-making position instead.

"However, at 0.7 times price-to-book and 3.5 per cent yield, we would continue to 'hold' the stock, given that a consensus 12-month target price of S$3.78 implies potential upside of 11 per cent," Lim & Tan Securities said.

Likewise, UOB Kay Hian analyst Adrian Loh told BT that there is no change to the brokerage's "hold" rating and its fair value of S$2.80.

In a report last year, UOB Kay Hian noted that while the property group's Q3 business update revealed "sequential recovery" in some of its businesses, the outlook for the retail, office and lodging segments appears "decidedly weak". "We do not see any meaningful share price catalysts for the stock in the near term and thus maintain our 'hold' rating," the brokerage said then.

As at 10.11am on Monday, CapitaLand shares had plunged S$0.09 or 2.7 per cent to S$3.31, though it is still above its 52-week low of S$2.51.

The counter continued its downward slide following the midday break, and was trading at S$3.24 as at 2.54pm, down S$0.16 or 4.7 per cent. Some 16.3 million shares changed hands, making it one of the most heavily traded by volume among the index securities.

No married deals were recorded by the afternoon trade, according to ShareInvestor data.

In its profit guidance issued last Friday, CapitaLand said it is expecting a full-year loss as a result of the impact from revaluations and impairments.

It is also expecting to recognise higher impairment losses in the range of S$800-900 million for FY2020 versus S$31.6 million for the previous year. The group is in the process of finalising valuations on its portfolio of properties as well as impairment assessments of its investments as at Dec 31.

Cash profit after taxes and minority interests (Patmi), comprising operating Patmi and portfolio gains, is anticipated to fall by 35-45 per cent from the S$1.49 billion achieved in FY2019.

Notwithstanding the expected full-year loss, the group's overall business and financial position remains resilient, it said. CapitaLand expects to deliver healthy cash Patmi for FY2020, which will continue to support the company's dividend policy, it added.

CapitaLand will be releasing its FY2020 financial results before the start of trading on Feb 24.

CapitaLand shares fell as low as S$3.23 in intra-day trading, before easing up slightly to finish at S$3.27 on Monday, down S$0.13 or 3.82 per cent.