Broker's take: DBS calls buy on CapitaLand on better earnings quality

DBS Group Research has a buy call on CapitaLand after the property group posted a robust set of earnings for its third quarter 2016 amid portfolio-wide improvement.

The research house believes that CapitaLand offers good value, trading at an attractive 0.7 times its price to book ratio and 0.6 times its price to revalued net asset value.

"The group's strategy to focus on growing its commercial portfolio is bearing fruit, offering better earnings visibility. Coupled with opportunistic asset recycling of mature assets into its listed Reits/funds, there is ample upside potential to our earnings estimates,'' DBS says.

It is keeping its buy call, with a target price of S$3.60 a share. CapitaLand was trading around S$3.08 a share, up 5 Singapore cents, or 1.65 per cent, at 4.10pm on Thursday.

CapitaLand reported on Wednesday that its net profit for the third quarter ended Sept 30, 2016, rose 28.4 per cent to S$247.5 million, compared to S$192.7 million a year ago. Revenue was up 27.7 per cent to S$1.4 billion, from S$1.1 billion previously.

DBS also sees growing recurring revenues from the group's retail mall portfolio and serviced residence owner-operator Ascott. These, it notes, offer strong income visibility in the medium term.

"The operating performance of its malls will improve as the properties reach maturity, boosted by the completion of four Raffles City mega developments in China in the medium term.''