Residential headwinds ahead for CapitaLand

Analyst expects anemic Chinese residential sales amidst buyer restrictions.

OCBC Investment Research said:

CapitaLand Ltd (CAPL) reported 4Q11 PATMI of S$476.6m, down 20% YoY. Adjusting for one-time items, we estimate 4Q11 PATMI at S$221.9m, which is in line with our expectations. 4Q11 topline came in at S$1,059m - 17% higher YoY. This cumulates to S$3,020m for the full year which is about 16% above our forecast mostly due to faster than expected recognition at development projects.

In China, we saw about 1,500 units sold in FY11 (3Q11: 409 units, 4Q11: 161 units). The group currently has 2.4k of launched and unsold units in China and would adopt an opportunistic stance with regards to launches. We expect anemic Chinese residential sales in FY12 as buyer restrictions are likely to stay.

CAPL sold 844 residential units in Singapore over FY11 (3Q11: 67 units, 4Q11: 506 units) and plans to launch 800-1,000 units per year over the next 2-3 years. The key highlight ahead is the 509-unit Sky Habitat launch at Bishan (expected 2Q12) which we believe would perform well.

CMA recorded earnings of S$456m, down 15.8% YoY mostly due to the lack of development profits from Orchard Residences. Execution of its pipeline remains on track with major Shanghai malls, Minhang and Hongkou, successfully opening for operations in FY11.

We see an inflection point in CMA’s recurring earnings, which could increase 84% from S$120m in FY11 to S$221m in FY12, partially offsetting falling Chinese residential sales.

China makes up 38% of total assets (ex. treasury cash) and 51% of pipeline developments. Over the near term, we believe the Chinese macro outlook to be a key driver of the share price which has rallied 31% YTD as China reversed into a loosening stance in 4Q11.