(Stocks Discussion) SGX: CapitaLand Limited (SGX: C31)?

Capitaland is a really strong and reputable real estate developer having presence both locally and overseas. I feel that it has the guts needed to survive in such an environment, making foray into the China market with it’s Raffles Place. Having so many other listed entities managing different aspects of the real estate industry does make this conglomerate one to look upon. However, with its price close to hitting the big $4, it might be a little steep at this point of time. Nonetheless, I believe when Raffles City Chongqing opens, it will generate much hype and fanfare with it’s iconic “MBS-like” structure

Hi guys! I will share some information that I have picked up online and some simple thoughts that I have here.

Business Profile

CapitaLand Limited is one of the largest real estate companies in Asia with an AUM of almost a $100bn. Most Singaporeans are quite familair with this brand name, and especially with the iconoic malls that they have such as Ion Orchard and Bedok Mall. They also have significant properties in China such as Raffles City Beijing. Its properties comprise of residential, shopping malls, offices and serviced apartments, with stakes in numerous funds and REITs.

Financials

Income Statement

Revenue for FY18 improved significantly by 21.3%, and with improved cost of sales, gross profit margin had improved by 32.9% YOY. Profit from operations also improved by 31.6% due to lower adminstrative and operating expenses. Finance costs had increased though, due to more debt being taken on. Nontheless, net profits grew by 21.4% YOY.

Balance Sheet

Current Ratio seems relatively healthy at 1.5X, which cash and receivables forming the bulk of current assets. Current liabilities comprise largely of short-term borrowings as well. The company also seems better leveraged with a D/E ratio of 0.56X. YOY changes also includes write-down of intangible assets and reduction in net PPE.

Cashflow Statements

There has been a worsening in cashflow from operating activities due to weakened working capital conditions despite improvements in earnings. Cashflows from investing activities increased due to dividednds received from associates, JVs and investments and lesser acquisitions for investment properties. Cashflows from financing activities had reduced due to share buybacks, repayment of borrowings and lesser contributions from non-controlling interests.

Valuation

Currently, the shares are trading at a trailing P/E of 9.51, a P/S of 2.76, a P/B of 0.81 and EV/Sales of 8.69 and a EV/EBITDA of 21.

Key Opportunities

Diversified Across Asset Classes

The diverse earnings base that the company has, spread across different regions, properties and investments helps to diversify some of the risk away. Both rental income and sale of properties helps to reduce the exposure of business during a downturn.

Growth Profile

With strategic plans to acquire more properties and expand into the ASEAN market, this would further help to broaden their assets and revenue base. This is especially true for the Chinese market, which seems to have good growth potential.

Risks

Geographical Risk

Much of revenue still flows from China and Singapore, which means that a large amount of risk is focused here. Any changes in economic conditions, government policies and regulations, can cause a significant impact. Moreover, such policy effects can be quite sudden as well.

Economic Slowdown

Slowing growth in China, and a potential property bubble in Singapore could cause property prices and rental income to be affected in the future. Since much of the risk is concentrated in these 2 regions, CapitaLand will need to hedge such risk effectively.