Capitaland Investment

[tonylim]

By DBS : CapitaLand Investment Ltd: A strong end to FY24!
Derek Tan27 Feb 2025 DBS
PATMI rose > 100% y/y on the back of higher gains and lower revaluation losses
Proposing higher dividend payout of 18 Scts / share translating to a yield of c.7%, 6 Scts worth of CICT shares (dividend in specie) a sweetener for shareholders
Board proposing to raise payout ratio to 50% of PATMI (form 30% previously)

What happened

CapitaLand Investment Limited (CLI) delivered a strong set of FY 2024 results, with total PATMI surging 165% y/y to SGD 479mn, beating ours and consensus estimates. This was driven largely portfolio gains of SGD 230mn (+8% y/y) and lower revaluation losses (- SGD 261mn, a 57% dip y/y). Operating PATMI, however, moderated 10% y/y from SGD 658mn> to SGD 510mn, reflecting the absence of divested assets. Revenue rose 1% y/y to SGD 2.815bn, as Fee-Related Business (FRB) revenue climbed 9% y/y to SGD 1.169bn, offsetting softer real estate investment income. EBITDA jumped 29% y/y to SGD 1.421bn, benefiting from SGD 230mn in net portfolio gains. CLI proposed a total 18 Singapore cents dividend per share, comprising a 12-cent core dividend and a 6-cent special dividend-in-specie of 0.031 CapitaLand Integrated Commercial Trust (CICT) units per share. The total payout ratio rises to 50% of cash PATMI, compared to 30% previously which the board is proposing to increase to enhance shareholder returns.

Our view

The strong performance is a shot of confidence for the group as CLI transition into an asset-light and fee-income based company. We believe that investors will cheers the (i) higher future payout and (ii) expected higher returns as the group continues to trim is balance sheet to achieve more operational efficiency. Maintain BUY, TP SGD 3.85.

[weijian]

CLI proposed a total 18 Singapore cents dividend per share, comprising a 12-cent core dividend and a 6-cent special dividend-in-specie of 0.031 CapitaLand Integrated Commercial Trust (CICT) units per share. The total payout ratio rises to 50% of cash PATMI, compared to 30% previously which the board is proposing to increase to enhance shareholder returns.

Our view

The strong performance is a shot of confidence for the group as CLI transition into an asset-light and fee-income based company. We believe that investors will cheers the (i) higher future payout and (ii) expected higher returns as the group continues to trim is balance sheet to achieve more operational efficiency. Maintain BUY, TP SGD 3.85.

I had invested in CLI, expecting to eventually own an "asset light" business but as usual, ownership will be more complicated as the company does dividend in specie or spin off portions of its "asset heavy" business to be more capital efficient. It is also very similar to how its 2 other siblings, Keppel Ltd and Sembcorp own transformation are also partly through distributing its own assets to shareholders.

CLI has stated "Targets sponsor stakes in listed funds of ~15-20% by 2028". Excluding the Msia REIT (at 41%), only CLAR meets the criteria at 18% ownership. The remaining 4 listed vehicles are ~2-5% above the upper limit of 20%. This probably means a few things I suppose:

(1) Any EFR will only be done from a "position of strength" and executed in a relatively good market sentiment for REITs, else the Sponsor CLI has a high risk of mopping up excess rights. CLI did a quick one with CICT when the latter bought the 50% Ion Orchard stake in that short window in Sept2024. On hindsight the team executed that opportunistic sale in such a short window, was pretty amazing. Was it luck? Or their executing capability to read the ground? Or a mixture of both?

(2) To acquire new assets, capital will largely be raised via private placements and debt. Private placements and debt had always been the preferred capital raising avenues for FUM managers for their FUM, but this had been shut since mid 2022. So in the next few years, there has to be a bigger move towards reversion to the mean pre-mid 2022, whether in terms of interest rates or willingness of institutional investors to allocate to Asia Pacific assets.

(3) More dividend in specie down the road. Maybe once every 2 years, based on current trend (8% of CLAS in 2023 and now 2% of CICT in 2025).