CapitaLand sheltered from Chinese house slump

Most of its China-based properties are commercial, and of the residential, most are selling well.

CapitaLand residential properties like The Metropolis, The Pinnacle and The Paragon will continue to move units, according to Kim Eng in a company update.

This, even as China’s home market increasingly turns sluggish. What propels CapitaLand sales in such a tough environment?

Here's more from Kim Eng:

More than just a China developer. We recently visited a number of CapitaLand’s projects in and around Shanghai. A key takeaway is that the group remains disciplined in its China operations, focusing on well located properties. Its China business is in net cash position and is not just focused on residential development. We maintain our belief that CapitaLand’s China business will prove profitable and that China should remain a key market for the group. Reiterate Buy.

Revisiting the OODL sites. CapitaLand acquired the OODL portfolio for US$2b early last year. To-date, it has launched and substantially sold units from the first phases at The Metropolis and The Pinnacle. All eyes will now be on the crown jewel, The Paragon, which is launchready. We expect an ASP of around MB120,000 psm, with demand likely to be robust given the project’s strong product positioning.

Location, location, location. Even as the Chinese residential market comes to a slow grind, CapitaLand remains committed to deepening its presence in key cities such as Shanghai and Beijing. We believe that prices of well-located projects, such as those near city centres, will hold up and be less susceptible to drastic corrections.

It’s not all about residential property. Beijing’s current policies are aimed at cooling home prices and have little impact on commercial properties. Residential development accounts for only 14% of CapitaLand’s assets, or 41% of its China assets. The majority of the assets comprise commercial properties such as retail malls and the seven Raffles City developments.

Focus on asset quality. CapitaLand’s current share price implies an overly-punitive 70% impairment to the asset values held under CapitaLand China Holdings. In our view, investors should instead focus on the quality of the investments in China. With the policy overhang likely to last until 2H12 at the least, we lower our target price for CapitaLand to $3.21, pegged at a steeper discount of 20% discount to RNAV. However, we maintain our Buy recommendation

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