Is CapitaLand worth ‘buying’ now?

Equity analysts are expecting a 40% upside on the CapitaLand stock, despite H1 2020 earnings being forecasted to plummet by over 85%.

Singapore property development group CapitaLand (SGX: C31) is scheduled to report its first half results (H1) for financial year 2020 (FY2020) before the start of trading on Friday 07 August 2020.

Below, we highlight three areas that investors should be aware of ahead of the earnings report.

CapitaLand shares fell over 7% in July 2020

CapitaLand shares have rallied 2.6% since the start of the week, as the market awaits the release of its much-anticipated H1 FY2020 report.

IG clients share the same sentiment as the rest of the market, with 94% of all open accounts in this market holding ‘buy’ (long) positions. This indicates an expectation for CapitaLand’s share price to rise in the near term.

Despite the current uptrend, IG’s market analysis shows that ‘sells’ form 71% of all trades on the CapitaLand counter on Wednesday 05 August 2020, and 60% of all trades so far this week.

As at 15:15 SGT on Wednesday, CapitaLand shares are trading at S$2.78 each.

Across the month of July 2020, share price was down as much as 7.1% at one point, thanks in large part to two soft profit updates provided on 06 July and 27 July respectively.

Analysts rate CapitaLand stock a ‘buy’ at S$3.85

The CapitaLand stock currently has an average rating of ‘buy’, based on a Refinitiv survey of 14 brokers.

A total of seven analysts have also given the stock an average 12-month share price target of S$3.85. This represents an upside of 38.5% from the last traded price.

Are you looking to buy long or short sell CapitaLand shares? Start today by opening an IG account.

RHB analyst Vijay Natarajan maintained his 12-month share price target at S$4 on an ‘overweight’ (buy) rating, placing CapitaLand as his ‘top pick’ among real estate equities.

His key reasons for the bullish scenario are the property sector’s resilience, ultra-low interest rates, government economic stimulus, predominant local buying and healthy household balance sheets pre-crisis.

‘Developers’ low margins have also limited price wars,’ he wrote, adding that the sector’s stocks have been trading at an attractive 40% to 60% book value discount as of 13 July 2020.

On the other hand, downside risks include the potential impact of a second Covid-19 wave and unsustainable economic data following the Singapore government’s earlier financial stimulus.

Meanwhile, CIMB’s Lock Mun Yee recommended investors to ‘add’ the stock on 15 July 2020 alongside a target price of S$3.52 per share.

She likes CapitaLand for its strong capital recycling and deployment into new investments, which she posits would continue to drive the group’s Return on Equity. The stock, she added, has also been trading at a 55% discount to revalued net asset value per share.

Finally, OCBC on 28 July 2020 maintained their fair value estimate at S$3.99 and rating at ‘buy’, citing wide economic recovery in the second half of 2020 and further government support measures.

CapitaLand’s H1 profit to plunge as much as 95%

Last Thursday 27 July 2020, CapitaLand updated its profit guidance for H1 FY2020, stating that the group’s total PATMI (profit after tax and minority interests) for H1 FY 2020 is expected to fall by between 85% and 95% from the S$875.4 million recorded in H1 FY2019.

This is after the group took into account its effective share of the revaluation losses (amounting to S$160 million) suffered by REIT subsidiaries CapitaLand Mall Trust (CMT) and CapitaLand Commercial Trust (CCT).

Both CMT and CCT posted a combined S$554 million loss on revaluation of their respective investment properties for the June-ending quarter. CapitaLand group has an interest of 28.49% and 29.42% in CMT and CCT respectively.

There are also no changes to the expected reduction in operating PATMI of between 25% and 35%, and cash PATMI decline of 40% to 50% as disclosed in the earlier guidance.

Finally, Q2 revenue and earnings per share are expected to drop by 29% and 23% year-on-year respectively to S$767 million and S$0.03, according to analysts polled by Refinitiv.

How to trade CapitaLand with IG

Are you feeling bullish or bearish on the CapitaLand stock? Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

  1. Create a live or demo IG Trading Account, or log in to your existing account
  2. Enter <CapitaLand Ltd> in the search bar and select the instrument
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

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