Buy Capitaland LTD: A Year of Consolidation

Deutsche Bank
Markets Research
Rating
Company
Buy
CapitaLand Ltd
Date
6 January 2016
Company Update
Asia
Singapore
Property
Reuters
CATL.SI
Bloomberg
CAPL SP
ADR Ticker
CLLDY
ISIN
US1405471004
Price at 6 Jan 2016 (SGD)
Exchange Ticker
SES
CATL
3.26
Price target - 12mth (SGD)
3.95
52-week range (SGD)
3.79 - 2.68
Straits Times Index
A year of consolidation
Stable growth at undemanding valuation
Having streamlined its structure and operations at the corporate level over the
past three years, we see CapitaLand focusing on asset level reconstitution in
2016, in view of a challenging macro outlook coinciding with several private
funds nearing their end of life. While its ROE target might be a stretch in 2016,
we see strong growth in operating PATMI on the back of stacked completion
of its integrated developments in China. With the stock trading at a 33%
discount to our RNAV estimates, implying zero valuation for its development
business and a 10% discount to its recurring business, CapitaLand offers stable
and diversified exposure to Asian real estate, and is one of our top picks.
Portfolio reconstitution and restructuring are potential catalysts
With a substantial portion of assets maturing, coinciding with a number of
private funds nearing end of life, we see opportunities for the group to recycle
capital and reconstitute its portfolio, especially China retail. The refocus on
growing its fund management platform could also allow the group to bring in
new capital partners. We also think CapitaLand should look to increase its land
bank in Singapore and other emerging markets.
Operating earnings growth intact but it needs a rabbit to meet its ROE target
While we expect 16% growth in operating PATMI in 2016, a potential
downward revaluation as a result of cap rate expansion and weak
fundamentals in Singapore affect the groups ability to meet its ROE target of
8%. Our number does not include any divestment or portfolio restructuring,
which could ultimately swing profitability in 2016.
Valuation and risks
We set our target price on earnings-based SOTP, which values the
development business using a 7x P/E multiple and the recurring business using
a 4-year DCF with a 2% LT growth rate and 6.75%. Key risks include worsethan-expected deterioration in the companys fundamental outlook and
changes in government policy in the various markets of its exposure.
2,834
Joy Wang
Chien-Fie Man
Research Analyst
(+65) 6423 5958
joy.wang@db.com
Research Analyst
(+65) 6423 6897
chien-fie.man@db.com
Price/price relative
4.0
3.6
3.2
2.8
2.4
1/14
7/14
1/15
7/15
CapitaLand Ltd
Straits Times Index (Rebased)
Performance (%)
Absolute
Straits Times Index
1m
3m
12m
0.9
10.5
0.6
-1.6
-2.2
-13.6
Source: Deutsche Bank
Stock data
Market cap (SGDm)
13,875
Market cap (USDm)
9,717
Shares outstanding (m)

Major shareholders
Free float (%)
Avg daily value traded
(USDm)
4,256.0
Temasek
(40.96%)
59
25.3
Forecasts And Ratios

Year End Dec 31
Sales (SGDm)
EBITDA (SGDm)
Reported NPAT (SGDm)
Reported EPS FD(SGD)
DB EPS FD (SGD)
DB EPS growth (%)
PER (x)
EV/EBITDA (x)
DPS (net) (SGD)
Yield (net) (%)
2012A
2013A
2014E
2015E
2016E
3,301.4
1,234.8
930.3
0.21
0.08
8.8
36.2
10.8
0.07
2.3
3,511.0
1,506.1
840.2
0.19
0.11
36.3
29.7
6.6
0.08
2.4
3,924.6
1,568.2
1,160.8
0.25
0.13
11.6
25.8
12.2
0.09
2.8
2,988.1
1,722.1
1,259.7
0.27
0.14
13.5
22.8
12.1
0.10
3.1
2,896.3
1,763.0
1,354.3
0.29
0.17
15.9
19.6
12.1
0.11
3.4
Source: Deutsche Bank estimates, company data

1
DB EPS is fully diluted and excludes non-recurring items
Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
6 January 2016
Property
CapitaLand Ltd
Fiscal year end 31-Dec
Model updated:03 January 2016

Running the numbers
2011
2012
2013
2014E
2015E
2016E
0.08
0.23
0.08
3.5
0.08
0.21
0.07
3.5
0.11
0.19
0.08
3.8
0.13
0.25
0.09
3.8
0.14
0.27
0.10
3.9
0.17
0.29
0.11
4.2
4,261
12,563
12,142
4,249
12,758
13,292
4,256
14,305
9,915
4,256
13,875
19,177
4,256
13,875
20,781
4,256
13,875
21,385
P/E (DB) (x)

P/E (Reported) (x)
P/BV (x)
38.7
12.9
0.63
36.2
14.4
1.04
29.7
17.8
0.80
25.8
12.9
0.86
22.8
11.9
0.83
19.6
11.1
0.78
FCF Yield (%)

Dividend Yield (%)
2.3
2.7
2.5
2.3
5.6
2.4
5.8
2.8
2.2
3.1
2.8
3.4
EV/Sales (x)
EV/EBITDA (x)
EV/EBIT (x)
4.0
9.7
9.7
4.0
10.8
10.8
2.8
6.6
6.6
4.9
12.2
12.2
7.0
12.1
12.1
7.4
12.1
12.1
3,020
1,073
1,256
0
0
1,256
-473
877
705
-751
909
191
366
0
1,057
3,301
1,228
1,235
0
0
1,235
-499
835
561
-613
957
202
386
0
930
3,511
1,237
1,506
0
0
1,506
-482
936
338
-488
1,473
205
765
0
840
3,925
1,382
1,568
0
0
1,568
-439
999
580
-681
1,447
267
599
0
1,161
2,988
1,534
1,722
0
0
1,722
-445
446
600
-706
1,018
251
107
0
1,260
2,896
1,605
1,763
0
0
1,763
-445
522
590
-700
1,140
266
110
0
1,354
-705
352
-561
369
-338
503
-580
581
-600
660
-590
764
-809
1,094
286
-61
-256
1,771
-801
939
-1,328
249
66
316
1
-340
1,875
-689
1,163
-476
956
-152
804
-15
-298
389
-423
457
-54
999
-192
806
150
-341
-10
-4,218
-3,612
52
1,153
-845
308
0
-383
0
-462
-537
-190
1,840
-1,454
387
0
-426
0
-641
-680
445
6,264
1,076
459
17,760
9,761
35,319
12,191
3,889
16,080
14,902
4,338
19,239
5,926
5,498
1,264
462
20,481
10,084
37,788
14,180
4,164
18,344
15,080
4,363
19,444
8,682
5,920
1,079
471
19,211
9,474
36,155
12,563
4,281
16,844
16,068
3,243
19,311
6,643
6,306
666
467
28,169
9,454
45,063
15,936
4,672
20,608
16,109
8,346
24,455
9,630
2,749
1,047
463
29,930
9,924
44,113
15,986
4,919
20,905
16,758
6,451
23,209
13,236
2,212
1,039
463
31,914
9,369
44,997
15,986
4,256
20,242
17,785
6,970
24,755
13,774
-10.8
-52.8
41.6
41.6
32.2
7.3
4.5
nm
30.8
2.7
9.3
8.8
37.4
37.4
32.0
6.2
4.4
nm
44.7
2.5
6.4
36.3
42.9
42.9
40.5
5.4
24.7
nm
34.4
3.1
11.8
11.6
40.0
40.0
33.0
7.2
38.3
nm
39.4
3.6
-23.9
13.5
57.6
57.6
33.8
7.7
59.4
nm
57.0
3.9
-3.1
15.9
60.9
60.9
34.6
7.8
50.2
nm
55.6
4.0
Financial Summary
DB EPS (SGD)
Reported EPS (SGD)
DPS (SGD)
BVPS (SGD)
Asia
Singapore
Property
CapitaLand Ltd
Reuters: CATL.SI
Bloomberg: CAPL SP
Weighted average shares (m)

Average market cap (SGDm)
Enterprise value (SGDm)
Valuation Metrics
Buy
Price (6 Jan 16)
SGD 3.26
Target Price
SGD 3.95
52 Week range
SGD 2.68 - 3.79
Market Cap (m)
SGDm 13,875
USDm 9,717
Income Statement (SGDm)
Company Profile
Capitaland Limited and its subsidiaries operate in
residential and commercial properties, property fund
management, and serviced residences. The Company also
manages hotels and other properties. Capitaland provides
agency and consultancy services and management
services.
Price Performance
4.0
3.6
Sales revenue
Gross profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest income(expense)
Associates/affiliates
Exceptionals/extraordinaries
Other pre-tax income/(expense)
Profit before tax
Income tax expense
Minorities
Other post-tax income/(expense)
Net profit
DB adjustments (including dilution)
DB Net profit
3.2
2.8
Cash Flow (SGDm)
2.4
Jan 14Apr 14 Jul 14 Oct 14Jan 15Apr 15 Jul 15 Oct 15
CapitaLand Ltd
Cash flow from operations

Net Capex
Free cash flow
Equity raised/(bought back)
Dividends paid
Net inc/(dec) in borrowings
Other investing/financing cash flows
Net cash flow
Change in working capital
Straits Times Index (Rebased)
Margin Trends
64
60
56
52
48
44
40
36
Balance Sheet (SGDm)

11
12
13
14E
EBITDA Margin
15E
16E
EBIT Margin
Growth & Profitability

20
10
10
-10
-20
-30
Cash and other liquid assets

Tangible fixed assets
Goodwill/intangible assets
Associates/investments
Other assets
Total assets
Interest bearing debt
Other liabilities
Total liabilities
Shareholders' equity
Minorities
Total shareholders' equity
Net debt
0
11
12
13
14E
15E
Sales growth (LHS)
Key Company Metrics
16E
ROE (RHS)
Solvency
60
50
40
30
20
10
0
4
3
2
1
0
11
12
13
Net debt/equity (LHS)
14E
15E
16E
Sales growth (%)

DB EPS growth (%)
EBITDA Margin (%)
EBIT Margin (%)
Payout ratio (%)
ROE (%)
Capex/sales (%)
Capex/depreciation (x)
Net debt/equity (%)
Net interest cover (x)
Source: Company data, Deutsche Bank estimates
Net interest cover (RHS)
Joy Wang
+65 6423 5958
Page 2
joy.wang@db.com
6 January 2016
Property
CapitaLand Ltd
What to look for in 2016?

A year of consolidation
Moving on to asset-level reconstitution
Over the past three years, CapitaLand has streamlined its structure through the
privatization of CMA and divestment of AustraLand; and streamlined its
operations at the corporate level through a number of cost-cutting initiatives
that lowered operating and financing expenses. With its corporate level
restructuring largely in place, we see the group moving on to asset level
reconstitution to improve the quality of its portfolio. This is an opportune time
when a number of its private funds are nearing their end of fund life.
We believe the divestment of retail assets in Tier 3 and selective Tier 2 cities
could be on the cards. We also see the group driving some portfolio
reconstitution exercises at the REIT level with potential participation in
redevelopment opportunities, such as at Funan IT Mall (CMT) and Golden Shoe
Car Park (CCT).
In addition, we believe the group will need to start replenishing its land bank in
Singapore and in other emerging markets. In Singapore, the reserve list of the
GLS programme presents opportunities, although keen competition is likely.
Figure 1: Integrated development sites on the GLS list
Location
Site Area Proposed

(ha)
GPR
Estimated No. of Estimated No. of Estimated Commercial

Residential Units
Hotel Rooms
Space (sqm)
Estimated
Launch Date
Comments
Confirmed List
Bukit Batok West
1.4
370
11,000
Dec-15
Near Millennia Institute, Bt

Batok Hillside Park
Near Holland village market
Reserve List
Holland Road
2.3
2.6
570
13,500
Dec-14
Woodlands Square
2.45
3.5
260
54,880
Jun-15
Next to Woodlands MRT
Central Boulevard
1.12
13
375
105,000
Available
Next to Asia Square, One

Raffles Quay
Total integrated development sites
1,575
184,380
Source: Deutsche Bank, URA
ROE to be affected by potential downward revaluation

Three years ago, the group set a course that targeted ROE of 8-12% by 2016.
While operating PATMI is likely to register a c.15% 3-year CAGR since 2013,
palatable growth in this challenging low-growth environment, there has been a
modest delay in the ramp-up of integrated development in China, the Raffles
Cities in particular. In addition, we expect meaningful downward revaluation in
2016 for the groups exposure to the Singapore commercial property market,
as we factor in a potential cap rate expansion across the sector and 10%
downward valuation for Singapore office properties. As such, its ROE target of
8-12% this year could be a stretch in the absence of one-off divestment gains.
While a temporary negative surprise, continuing delivery of operating PATMI
growth and the potential realization of RNAV should provide the market with
comfort, especially at its current valuation.
Page 3
6 January 2016
Property
CapitaLand Ltd
Valuation
Earnings-based SOTP
We introduced an alternative valuation methodology in our report published
4 Jan 2016, Singapore property: 2016 outlook a relative outperformer. In our
earnings-based valuation method, we value trading and recurring businesses
using two separate approaches, with P/E multiples used for the
residential/trading segments and DCF used for the recurring segments.
Figure 2: Operating EBIT breakdown
100%
80%
62%
60%
71%
71%
73%
29%
29%
27%
40%
20%
38%
0%
2014
2015
Development
2016
Recurring
2017
Source: Deutsche Bank, Company Data
We note that recurring business currently contributes to c.70% of CapitaLands

operating EBIT. Our earnings-based SOTP values the development business
using a 7x P/E multiple and recurring business using a 4-year DCF with 2% LT
growth rate and 6.75%.
Figure 3: Earnings-based SOTP
2016E
2017E
2018E
2019E
2020E
Terminal
EBIT - Trading business

Singapore residential
18
62
59
China residential
310
365
188
107
Other overseas residential
152
85
113
147
Sub total
471
468
364
312
Operating earnings post tax
391
388
302
259
Valuation for trading business
2,346
EBIT - Recurring business

Singapore commercial
107
112
114
116
118
China commercial
142
196
328
454
589
CMA
544
645
746
833
931
Ascott
255
293
316
325
334
Management fees
116
120
126
133
133
Sub total
1,163
1,366
1,631
1,860
2,104
Capex
1,849
1,029
458
FCFF for recurring business
-883
104
896
1,544
1,747
Valuation for recurring

business
27,830
Net debt
11,937
Equity valuation
18,239
Target price
37,547
3.96
Page 4
6 January 2016
Property
CapitaLand Ltd
We note that CapitaLand is trading at only a 10% discount to its recurring

business, thus assigning zero valuation to its residential/trading business,
despite part of its land bank being already locked in.
RNAV valuation
We present our RNAV estimates in detail for CapitaLand. Our estimates
assume a further 5% decline in residential prices and 10% decline in office
valuation. We also assumed a 50bps cap rate expansion for most of its assets
in Singapore.
Figure 4: CAPL RNAV breakdown
2016E
2017E
1,812
1,395
CapitaLand Singapore
Residential
Commercial ex CCT
939
939
1,580
1,580
Residential
3,081
2,723
Commercial
7,148
7,869
Assets
12,210
12,912
CapitaLand Mall Trust
2,131
2,131
CapitaLand Retail China Trust
320
320
CapitaLand Malls Malaysia Trust
477
477
1,983
2,272
901
901
Overseas residential
515
464
Overseas commercial
231
231
Financial services
1,105
1,105
Gross Asset Value (GAV)
34,433
35,318
CapitaLand Commercial Trust
CapitaLand China
CapitaLand Malls Asia
The Ascott Group

Assets
Ascott Residence Trust
Others
Cash & equivalent
1,532
2,712
-15,986
-15,986
Adjustment for REIT debt
2,517
2,517
RNAV
22,496
24,561
Total group borrowings
RNAV/share
4.88
5.33
Fully diluted no. of shares outstanding
4,606
4,606
Page 5
6 January 2016
Property
CapitaLand Ltd
Figure 5: CAPL discount/premium to RNAV
Figure 6: CAPL price-to-book
70%
3.50
50%
3.00
30%
2.50
10%
2.00
-10%
1.50
-30%
1.00
-50%
0.50
-70%
-90%
Jan-91
Jan-95
Jan-03
Jan-07
Jan-11
Jan-15
0.00
Jan-90
Jan-94
Jan-98
Jan-02
Jan-06
Jan-10
Jan-14
CAPL
Mean
+1 s.d.
CAPL
Mean
+1 s.d.
+2 s.d.
-1 s.d.
-2 s.d.
+2 s.d.
-1 s.d.
-2 s.d.
Page 6
Jan-99
6 January 2016
Property
CapitaLand Ltd
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company
Ticker
Recent price*
Disclosure
CapitaLand Ltd
CATL.SI
3.26 (SGD) 6 Jan 16
6,9,14,17
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other
information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the
primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.
See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
6.
Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this
company calculated under computational methods required by US law.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company
within the past year.
Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
6.
company calculated under computational methods required by US law.
9.
company calculated under computational methods required by India law.
17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds,
Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following
issuer(s), or issuer(s) group, is more than 25m Euros.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=CATL.SI
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the
subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive
any compensation for providing a specific recommendation or view in this report. Joy Wang
Page 7
6 January 2016
Property
CapitaLand Ltd
Historical recommendations and target price: CapitaLand Ltd (CATL.SI)

(as of 1/6/2016)
4.00
Previous Recommendations
6
3.50
Security Price
3.00
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
3
2
2.50
Current Recommendations
2.00
Buy
Hold
Sell
Not Rated
Suspended Rating
1.50
1.00
*New Recommendation Structure

as of September 9,2002
0.50
0.00
Jan 14
Apr 14
Jul 14
Oct 14
Jan 15
Date
Apr 15
Jul 15
Oct 15
1.
14/01/2014:
Buy, Target Price Change SGD4.11
5.
15/10/2014:
2.
03/02/2014:
6.
04/03/2015:
3.
19/02/2014:
7.
03/01/2016:
4.
12/06/2014:
Equity rating key

Buy: Based on a current 12- month view of total
share-holder return (TSR = percentage change in
share price from current price to projected target price
plus pro-jected dividend yield ) , we recommend that
investors buy the stock.
Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not
recommend either a Buy or Sell.
Notes:
1. Newly issued research recommendations and
target prices always supersede previously published
research.
2. Ratings definitions prior to 27 January, 2007 were:
Equity rating dispersion and banking relationships

500
450
400
350
300
250
200
150
100
50
0
52 %
37 %
23 %
Buy
15 %
Hold
Companies Covered
11 %
20 %
Sell
Cos. w/ Banking Relationship
Asia-Pacific Universe
Buy: Expected total return (including dividends)

of 10% or more over a 12-month period
Hold:
Expected
total
return
(including
dividends) between -10% and 10% over a 12month period
Sell: Expected total return (including dividends)
of -10% or worse over a 12-month period
Page 8
6 January 2016
Property
CapitaLand Ltd
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
Page 9
6 January 2016
Property
CapitaLand Ltd
Additional Information
The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively
"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources
believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.
Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own
account or with customers, in a manner inconsistent with the views taken in this research report. Others within
Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those
taken in this research report. Deutsche Bank issues a variety of research products, including fundamental analysis,
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Page 10
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Property
CapitaLand Ltd
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Property
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Page 12
David Folkerts-Landau
Chief Economist and Global Head of Research
Raj Hindocha
Global Chief Operating Officer
Research
Marcel Cassard
Global Head
FICC Research & Global Macro Economics
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Buy Capitaland LTD: A Year of Consolidation

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Deutsche Bank

Price at 6 Jan 2016 (SGD)

Price target - 12mth (SGD)

52-week range (SGD)

Straits Times Index

Source: Deutsche Bank

Market cap (USDm)

Shares outstanding (m)

Source: Deutsche Bank

Forecasts And Ratios

Source: Deutsche Bank estimates, company data

DB EPS is fully diluted and excludes non-recurring items

Model updated:03 January 2016

P/E (DB) (x)

FCF Yield (%)

Weighted average shares (m)

SGD 2.68 - 3.79

Market Cap (m)

Income Statement (SGDm)

Cash Flow (SGDm)

Cash flow from operations

Straits Times Index (Rebased)

Balance Sheet (SGDm)

Growth & Profitability

Cash and other liquid assets

Sales growth (LHS)

Key Company Metrics

Net debt/equity (LHS)

Sales growth (%)

Net interest cover (RHS)

Deutsche Bank AG/Hong Kong

What to look for in 2016?

Site Area Proposed

Estimated No. of Estimated No. of Estimated Commercial

Near Millennia Institute, Bt

Near Holland village market

Next to Woodlands MRT

Next to Asia Square, One

Total integrated development sites

Source: Deutsche Bank, URA

ROE to be affected by potential downward revaluation

Deutsche Bank AG/Hong Kong

Source: Deutsche Bank, Company Data

We note that recurring business currently contributes to c.70% of CapitaLands

EBIT - Trading business

Other overseas residential

Operating earnings post tax

Valuation for trading business

EBIT - Recurring business

FCFF for recurring business

Valuation for recurring

Source: Deutsche Bank

Deutsche Bank AG/Hong Kong

We note that CapitaLand is trading at only a 10% discount to its recurring

CapitaLand Mall Trust

CapitaLand Retail China Trust

CapitaLand Malls Malaysia Trust

Gross Asset Value (GAV)

CapitaLand Commercial Trust

CapitaLand Malls Asia

The Ascott Group

Cash & equivalent

Adjustment for REIT debt