Capitaland Investment - S$200bn five-year FUM target

Excerpts from CGS International report

Capitaland Investment (SGX: 9CI)

2H/FY23 EPS (including divestment gains) of 8.4/15.3 Scts was in line, at 55.6%/101% of our FY23F forecast.
CLI’s aim to double FUM to S$200bn over five years should boost FRB revenue in the medium-term.

Reiterate an Add rating with an unchanged TP of S$4.30.

2H/FY23 results highlights

Capitaland Investment (CLI) reported 2H23 revenue of S$1.44bn, -5.5% yoy, due to lower real estate investment business (REIB) revenue which fell 13% yoy to S$976m.

This was partly offset by higher fee income business (FRB) revenue which grew by 17% yoy to S$458m. 2H23 reported PATMI came in at S$170m net loss due to revaluation deficits and impairments in its US and China portfolios.

Excluding this, 2H23 PATMI (including divestment gains) would have been S$430m, +8% yoy. FY23 PATMI (including divestment gains) of S$781m, -6% yoy, was in line with our estimates.

Net debt-to-equity ratio stood at 0.56x at end-FY23. CLI has proposed a final DPS of 12 Scts for FY23.

Capitaland Investment aims to double FUM to S$200bn over the next five years

FY23 FRB revenue rose 9% yoy to S$1.07bn, boosted by higher listed funds, lodging management and commercial management fees. This offset the decline in private funds management fee due to lower event-driven performance fees.

Funds under management (FUM), including S$10bn of embedded FUM, stood at S$100bn at end FY23 while fund fees averaged 46bp during the year.

CLI has set a new S$200bn FUM target over the next five years. In tandem with this, in addition to its strategy to divest China and USA assets in FY24F, CLI is looking for opportunities to utilise its strong balance sheet to seed new funds.

In terms of geography, management seeks to increase exposure to India and South East Asia and widen its fund product offerings in Japan, South Korea and Australia while optimising China through Rmb-denominated funds.

We believe CLI’s plans to grow its recurring fee-income business should uplift its ROE in the medium term.

REIB revenue weighed by weaker China and US contributions

FY23 REIB revenue fell c.9% yoy to S$1.89bn, dragged by lower corporate leasing income in the USA and lower rental revenue in China. YTD, CLI has achieved S$2.1bn of gross divestments and made S$2.66bn of gross investments.

CLI has S$8.6bn of assets on its balance sheet and another S$5.1bn of investments through stakes in its private funds.

Management indicated that it would continue to lighten its balance sheet through divestments of its on-balance sheet assets, to enable it to reach its targeted double-digit ROE in the medium term.

Valuation/Recommendation

We tweak down our FY24-25F EPS by 1.86-3.20% post results. Our TP is maintained at S$4.30, based on a 10% discount to RNAV. We reiterate our Add call because we like CLI’s strong recurring fee-income base, which provides good income visibility, and its asset-light fund management model.