CapitaLand (CapLand) announced a weak set of 4Q08 results, with revenue declining by 46.9% YoY to S$703.7m. This was largely expected with the weak economic outlook and slow property sales in 4Q08. Operating profit fell 53.1% to S$263.7m and the decline was mitigated by gains from the divestment of Somerset Orchard and Link REIT units. No provisions were made on the landbank that CapLand acquired during the property boom but a fair value loss of S$58.9m was recognized for its properties in Australia, Japan and UK. 4Q08 PATMI plunged 88.4% to S$78m, in line with our expectations.
CapLand announced a 1-for-2 rights issue at an issue price of S$1.30 per rights share to raise gross proceeds of S$1.84b. According to CapLand, this rights issue is a preemptive move to enhance its capacity to seize opportunities that arise. After the rights issue, CapLand's balance sheet will be further strengthened, with a cash hoard of S$6b and improved net gearing ratio of 0.28x. The rights shares will also be entitled to CapLand's FY08 dividend of 7 Scents.
Using CapLand's end-FY08 book value, our FY09 RNAV is now pegged at S$3.85 per share. In view of the strengthening of CapLand's balance sheet after the rights issue, we are lowering our discount for development profits and investment properties, from the previous 40% to now 30%. We continue to peg the valuation of CapLand's listed investment base at their market values, without discount. As such, our fair value of CapLand has been lowered from S$3.27 to S$2.99 (or ex-rights fair value of S$2.42). We are now upgrading CapLand from HOLD to BUY as the stock has already fallen 34% since our downgrade on 5 Jan 2009 and the overhang from the Rights issue is now lifted.
Source: OCBC Investment Research, 10 Feb 2009
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