Dear all

Just wish to alert that Capitaland Investment (CLI) is trading at an all-time low since its move to privatise its development arm and spin off its fund-management and property-investment business (refer to Business Times’ link HERE).

As I am writing this article, CLI has tumbled approximately 14% from $3.19 on 2 Jan 2024 to trade $2.75 today. If it closes at $2.75 today, it will be an all-time low closing price. The recent decline is accompanied with above average volume. Although such price action is not ideal, I wish to discuss a few points below on why I think it is interesting.

Description of CLI

Based on Figure 1 which was sourced from CLI’s Nov 2023 Bangkok Corporate Day slides (click HERE), as of 30 Sep 2023, CLI has S$90b funds under management (FUM) and has a market capitalisation of S$15.9b. Current market capitalisation as of today is around S$13.9b. It earns fee income from four sources, namely fees from fund management of its listed funds management; private funds management; lodging management and commercial management.

Figure 1: Snapshot of CLI

Source: Company

a) Analysts still prefer CLI post profit warning

Based on Figure 2 below, average analyst target price is around $3.95, indicating a potential capital upside of around 44%. Out of 15 analysts who cover CLI, there are 15 buys; 0 hold and 0 sell call. Based on Bloomberg, FY23F and FY24F dividend yield are 4.8% and 5.1% respectively. Total potential return is around 48%, should the consensus be right. Readers can refer to CLI’s analyst reports HERE.

Figure 2: Average analyst target $3.95, with a total potential upside of around 48%

Source: Bloomberg as of 26 Feb 24

b) Attractive valuations

Based on Bloomberg, CLI trades at 1.0x current P/BV, 2 standard deviations below its 2Y average P/BV of 1.2x. NAV / share based on Shareinvestor is around $2.86.

c) CLI’s fund deployment momentum seems to have picked up in 2024 

According to some reports that I read, CLI has likely exceeded its target of funds under management (FUM) of SGD100b ahead of its target by 2024, especially as its fund deployment momentum seems to have picked up in 2024. A possible catalyst may arise if CLI can unveil their next FUM target in their 4Q results which will be announced on 28 Feb before market opens.

d) Support area $2.70 – 2.76 likely holds over the medium term

Based on Chart 1 below, CLI is entrenched in a downtrend line. Nevertheless, there seems to be some positive observations on the chart.

• Bullish divergences can be seen in some indicators such as MFI, RSI, MACD etc;
• CLI seems to have buying interest around $2.75 – 2.78;
• Volume on 23 Feb 2024 marks a 15-month high volume. This may be a selling climax but we need additional price data to be sure.

 Chart 1: Volume on 23 Feb 2024 hits the highest last seen on 4 Nov 2022!

Source: InvestingNote 23 Feb 24

e) Some bad news may arguably be priced in

CLI already announced a profit warning on 8 Dec 2023 (click HERE) that it expects to report a significant decrease in net profit attribute to equity holders for FY2023 as compared to FY22. This is due mainly to fair value losses on its portfolio of investment properties, primarily attributable to the investment properties in the markets such as Australia, China, Europe, UK and U.S. The fair value losses are however non-cash in nature and arose mainly due to higher capitalisation rates and weaker market sentiments.

f) Share buyback may restart after results

CLI has stopped its share buyback ahead of its results release on 28 Feb. The last share buyback was conducted on 26 Jan 2024 where 5m shares were bought between $2.90 – 2.92.

Important noteworthy risks

Due to severe time constraints, the below is just an abridged list of risks in addition to the usual business risks. It is not an exhaustive list of risks.

a) Possibility of downward revision in target price post results

Depending on CLI’s FY23 results and guidance, there may be a reduction in CLI’s target price as analysts tweak their assumptions post results.

b) Chart reading is subjective and stock can get lower

It is important to note that chart reading is subjective. Furthermore, based on the conventional chart methodology, buying a stock when it is trading at all-time low prices (a.k.a. catching a falling knife) may not be sound. This is because the price may continue to slide amid strong selling momentum.

c) Buying before results may be risky

CLI reports results on 29 Feb before market opens. Buying before the results may be risky as it is difficult to project how its share price may react post results. A worse than expected results and importantly, guidance may have an adverse impact to its share price.

Several companies such as Genting Singapore, Raffles Medical, Seatrium, SIA and UOB etc. have gapped down post their results. Such weak price action post results makes investors wary of buying ahead of results.

d) My first look in CLI

The above is my elementary take and my first look in CLI. Readers should refer to analyst reports HERE who are definitely more familiar in CLI than me.

Conclusion

The above is an abridged version and is written based mainly on a chart and price perspective. Given its 14% decline from $3.19 on 2 Jan 2024, coupled with support levels and attractive valuations, it may be worth a closer look at current level. Notwithstanding this, chart reading is subjective and buying ahead of results may be risky. Readers are encouraged to refer to CLI’s analyst reports HERE for more information.

P.S: I am vested for trading only.

Disclaimer

Please refer to the disclaimer HERE