CapitaLand Investment - Maybank Research 2023-08-14: Headwinds, But Valuation Reasonable; Upgrade To BUY

• We tactically upgrade CapitaLand Investment (SGX:9CI) to BUY from HOLD as we believe risk-reward is favourable.
• While the deal making environment is difficult, the rebounding lodging business, steady stream of fees from an asset-light business model, supportive policy in China, plateauing interest rates and reasonable valuation (17% discount to RNAV, ~4% yield) makes us alter our stance.

1H23 results reflects prevalent operating conditions.

• - Read this at SGinvestors.io -
• Operating PATMI was stable y-o-y at S$344m, as operating gains were offset by lack of performance fees.
• Key drivers faced crosswinds from challenging capital markets and a recovering lodging market.

Steady annuity fees amid cautious capital markets

• - Read this at SGinvestors.io -
• Property management fees were steady. Funds under management grew 1% h-o-h and 3% y-o-y to S$89b, with growth driven by private funds (+4% h-o-h and +12% y-o-y to S$29b). While fund commitments grew to S$10b, deployment remains slow.
• 1H fee rate dipped to 45bps (-7bps y-o-y and -4bps vs FY22) and EBITDA margin for the fund management business fell to 47% vs 61% a year ago. Lower performance fees affected both.
• CapitaLand Investment and an investor partner (50% stake) launched a second India Growth Fund with a focus on business parks and targets a fund size of S$525m (CapitaLand Investment likely to have 20% stake). The seed asset for the fund is a 70% stake in a Chennai business park from the sponsor.

Lodging business rebounding

• Read more at SGinvestors.io.

Krishna Guha Maybank Research | https://www.maybank-ke.com.sg/ 2023-08-14 SGinvestors.io

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