CapitaLand Investment Ltd (CLI SP): Positioning for Growth
Broker: Maybank Research Pte Ltd
Date of Report: February 28, 2025
Overview
CapitaLand Investment Ltd (CLI SP) has reported significant growth in its financial performance for FY24, with a net profit after tax and minority interests (PATMI) of SGD479 million, a remarkable 165% increase year-on-year. However, the operating PATMI saw a slight dip of 10% YoY to SGD510 million, aligning with market expectations. This performance was bolstered by reduced revaluation losses and ongoing capital recycling strategies. The firm maintains a steady cash dividend, unchanged from the previous year, supplemented by an in-specie dividend of CICT SP units, reflecting a strategic approach to growth and shareholder returns.
Key Financial Highlights
The revenue for FY24 increased marginally by 1% YoY to SGD2.815 billion, with notable growth in fees-related businesses, which expanded by 9% YoY. Core segments such as fund management, lodging management, and commercial property management displayed growth rates of 7%, 4%, and 17%, respectively. A breakdown of the business indicates that the average fund balances remained stable, while lodging revenue per available unit (RevPAU) increased by 6% YoY. This growth trajectory has been supported by an unchanged EBITDA margin of 37% across the fees business.
Balancing Growth and Financial Health
CLI has strategically divested SGD5.5 billion, effectively reducing its balance sheet stakes from SGD8.6 billion to SGD4.3 billion. The proceeds have been redeployed into mergers and acquisitions, including a 40% stake in SC Capital and Wingate, alongside acquisitions by listed funds. The year-end Fund Under Management (FUM) grew 20% YoY to SGD117 billion, enhancing CLI’s capital position. The recycling and deconsolidation of CLAS SP have further improved CLI’s net debt-to-equity ratio to 0.39x, although profitability remains constrained due to prior revaluation losses.
Future Growth Strategy
Management has outlined a robust capital deployment strategy, targeting between SGD4.5 billion and SGD7.4 billion for future growth through balance sheet re-gearing. This capital will be allocated towards asset warehousing, mergers and acquisitions, and seed capital for new projects. Furthermore, management has increased the payout ratio to 50% from 30% of cash PATMI, reiterating its commitment to maintaining a cash dividend of SGD0.12 per share. This consistent dividend policy reflects a healthy return on cash PATMI averaging 80% over the last three years.
Investment Recommendation
Maybank Research maintains a BUY recommendation for CLI, underscoring its reasonable valuation at 0.9x net tangible assets and a solid cash dividend yield of 4.6%. The projected sum-of-the-parts (SoTP) target price is set at SGD3.30, reflecting an upside potential of 26%. With continuous growth in its fee-related business and effective execution of its strategic initiatives, CLI is well-positioned for sustained long-term value creation.
Financial Projections
CLI’s financial metrics for the upcoming fiscal years indicate a positive outlook. Revenue projections for FY25E are estimated at SGD2.251 billion, with an EBITDA forecast of SGD1.499 billion. The core net profit is expected to rebound to SGD842 million in FY25, with significant growth anticipated in the following years. The company’s core P/E ratio is projected to improve to 15.5x in FY25, indicative of a potential recovery and a strengthening of its financial position.
Conclusion
In summary, CapitaLand Investment Ltd is navigating a complex market landscape with a strategic focus on growth through effective capital management and operational excellence. The positive financial performance in FY24, coupled with a clear vision for future growth, positions CLI as a key player in the real estate investment management sector. Maybank Research’s recommendation to BUY highlights the potential for attractive returns driven by CLI’s sound financial strategy and market positioning.
