Previous Day Closing price: $2.36
Recommendation: BUY (maintained)
Target price: $3.06 (reduced from $4.18, adjusted for rights issue)
CapitaLand reported an FY08 PATMI of $1.3bn, representing a 54.3% decline yoy decline, in line with our expectations. Revenue fell by 27.4% yoy to $2.8bn. Stripping out fair value gains, PATMI still declined by 39.1% yoy, due mainly to lower development profits and absence of writeback of previous provisions.
EBIT from CapitaLand China Holdings of $883.4m due mainly to divestment gains accounts for 40% of total EBIT, making the SBU the largest contributor. CapitaLand Financial, the fund-management SBU, continues to grow, with a current total AUM standing at $25.9 bn from 5 REITS and 17 private funds.
30%-owned CMT has concurrently announced a 9-for-10 renounceable rights issue at a price of $0.82 to raise $1.23bn. The proceeds will be largely used to repay debt due in 2009 totaling $956m. CapitaLand has committed to subscribe up to 60% of the new units, amounting up to $739.2m. Should that be the case, CapitaLand’s net gearing would still remain a comfortable 0.36x.
Following the rights issue, CapitaLand will be positioned even more strongly to build a base for the next stage of growth. Its net gearing and cash position will put it ahead of its peers. We maintain our BUY recommendation, with a post-rights target price of $3.06, based on a 10% discount to RNAV.
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