Can CapitaLand redeem itself with its China and Vietnam business?

Around 60% of the 7,800 units sold in China for around $2.55b will be recognised in H2.

CapitaLand’s dismal start in 2019 amidst its profit dip in Q1 could be redeemed in H2 through a strong backup from its China and Vietnam properties, according to OCBC Investment Research analyst Andy Wong.

The real estate firm has handed over 328 residential units in China with a total value of $240m (RMB1.2b). “Looking ahead, ~60% of the 7.8k units sold previously worth ~$2.55b (RMB17.2b) are expected to be recognised from Q2 to Q4 2019. This would imply a backend loaded year for its Chinese residential operations,” Wong said, noting that CapitaLand has observed selective policy easing in the cities which it operates in and that price caps for projects are allowed to be lifted by around 2-4% per quarter.

Wong is positive that key demand drivers include the influx of talent into Chinese tier-1 and 2 cities, resulting in the need for more homes. “However, policy changes remain as a major risk, as the political bureau recently reiterated that houses are used for living, not for speculation,” they noted.

Meanwhile, Vietnam, which is also a core market for CapitaLand, will have slower launch schedules than originally anticipated, as a change in the regulatory environment has led to longer approval timelines for projects.

“Besides this, fundamentals in the market remain robust,” the research firm said, noting that around 31% of the $732m residential units sold previously are expected to be recognised from Q2 to Q4 2019.

CapitaLand’s Q1 profits fell 7.4% YoY to $295.57m in Q1 dragged by lower contributions from Singapore and China.