CapitaLand Investment pays a 6.7% dividend yield – Will I buy this stock at 0.99x book value? (as a Singapore Investor in 2024)

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I’ve noticed rather progressive chat astir CapitaLand Invesment among readers.

So I wanted to merchandise this FH Premium article written past month, to springiness an penetration into my thinking.

Note that this was written successful early April, truthful immoderate of nan charts are somewhat outdated – but nan thought process remains relevant.

If you find this useful – do motion up for FH Premium for much premium articles for illustration this.

So nan database of stocks that you guys (FH Premium readers) person asked for a deeper dive connected are:

  1. CapitaLand Investment
  2. CDL
  3. Parkway Life REIT
  4. Ping An
  5. Link REIT

(If location are immoderate others that you want a heavy dive into, please consciousness free to time off a remark below.)

In today’s article I decided to return a deeper look astatine CapitaLand Investment.

CapitaLand has large vulnerability to China existent estate, truthful it’s a bully opportunity to talk immoderate of nan caller developments successful China.

As always, I walk immoderate clip discussing nan broader geopolitical ambiance and thought process, but if you want nan summary conscionable skip to nan conclusion astatine nan end.

 

CapitaLand Investment’s stock value is astatine rhythm lows (since IPO)

Here’s nan latest stock value for CapitaLand Investment.

At 2.70, this is adjacent to nan each clip lows since “IPO” successful 2021 (technically not IPO but a rotation off).

Dividend output is 4.44% astatine this value (12 cents per share).

If you see nan typical dividend of 6.1 cents successful FY 2022 (distribution of 0.057013 CapitaLand Ascott Trust (CLAS) portion per mean stock and nan closing marketplace value of S$1.07 per CLAS portion connected 11 May 2023).

Then it is simply a dividend output of 6.7% (including typical dividend).

However do statement that location was nary typical dividend for FY 2023 (there was 0.03 typical dividend successful FY 2021 however), truthful I deliberation nan 4.44% dividend output is nan much “accurate” number.

Meanwhile CapitaLand Investment trades astatine 0.99x book value.

For a Temasek backed existent property developer that holds rather a sound spot portfolio, and is trying to position itself arsenic a existent property finance head (asset ray exemplary for illustration Blackrock / Blackstone).

Is location worth astatine this price?

Is CapitaLand Investment a bully bargain astatine this price?

CapitaLand issued a profit informing for FY2023, and for bully logic because profit dropped complete 70% connected a twelvemonth connected twelvemonth basis.

The large logic for that nonaccomplishment – is owed to revaluation nonaccomplishment arising from little spot prices.

The 2 large losers?

China, and US.

The Singapore portfolio did good (which is why I support saying to attraction connected Singapore existent property this cycle).

India portfolio did decent too, and Europe was average.

But nan 2 large markets of China and US performed terribly.

Note really China makes up 34% of nan AUM and suffered a $511 cardinal loss.

While USA + UK + Europe makes up 9% of nan AUM, and USA unsocial suffered a $213 cardinal loss.

Just goes to show really immense nan diminution successful US existent property prices has been.

Note besides that 34% of CapitaLand Investment’s AUM is successful China, which intends their China AUM is larger than their Singapore AUM:

Because of this, location are 3 points to talk erstwhile analysing CapitaLand Investment:

  1. Macro – Has China bottomed?
  2. Macro – Interest complaint outlook for existent estate?
  3. Micro – Is CapitaLand Investment executing well?

Macro – Has China bottomed? (affects CapitaLand Investment’s China portfolio)

Ray Dalio had a great portion connected China complete nan weekend.

It is not easy to summarise because location is simply a batch of nuance to nan views (so I highly urge reference if you are superior astir investing successful China).

But economically, nan cardinal takeaways are:

  1. China is going done a play wherever they request to modulation their system distant from existent property / infrastructure growth, into caller areas of maturation for illustration precocious manufacturing and home consumption
  2. This creates a batch of home discontent, arsenic definite parts of nan system for illustration existent property execute very poorly during this period. So mean folks will consciousness poorer because of little income and little location values, while nan elites are successful threat of losing their business empire and they see governmental situation against Xi
  3. At nan aforesaid time, this coincides pinch a play of greater “conflict” pinch nan west. Both successful exertion (bans connected precocious exertion sharing pinch China) and waste and acquisition (tariffs aliases waste and acquisition barriers against China)

What should China do?

Dalio’s conclusion is that (emphasis mine):

…the activity needs to person a indebtedness restructuring, which it should do via engineering a beautiful deleveraging or it will person a “lost decade” for illustration Japan’s.

While galore group deliberation argumentation makers should easiness monetary argumentation to create much credit, I deliberation they correctly view creating much in installments and indebtedness for illustration giving an alcoholic a portion to thief easiness withdrawal problems.

I judge that they should technologist some 1) a deleveraging (which is deflationary, depressing, and will trim nan indebtedness burden) and 2) an easing of monetary argumentation (which is inflationary, stimulative, and will easiness nan indebtedness burden) truthful that nan deflationary ways of reducing indebtedness and nan inflationary ways of doing it balance. This is what I mean by a “beautiful deleveraging.”

What happens if this is not done?

In my opinion, this should person been done 2 years agone and if not done will astir apt lead to a mislaid decade.

I deliberation immoderate of nan economical leaders, particularly those who did this nether Zhu Rongji, understand really to do this, but it is very difficult and politically vulnerable to do because it engineers large changes successful wealth, which is politically challenging, particularly during a difficult clip because group squawk. In my opinion, if nan activity doesn’t execute a beautiful deleveraging, China will person a Japanese-style mislaid decade pinch Marxist characteristics.

My views connected China?

As you tin see, Dalio’s views are very overmuch successful statement pinch what I’ve been saying.

China is astatine consequence of a Japan style mislaid decade here, if they do not grip nan existent property situation properly.

Given nan size of nan existent property manufacture (almost 30% of China’s GDP), you cannot switch it pinch home depletion aliases manufacturing overnight, short of a monolithic stimulus injection.

At nan aforesaid time, really handling nan existent property situation decently is not easy because it will beryllium profoundly unpopular and will lead to governmental challenge, which is why you spot Xi taking steps to consolidate his power.

All while nan occidental nations are actively trying to derail China’s development.

To day – we person seen very small signs of nan monolithic stimulus injection required to spark a turnaround successful China, nan benignant of “beautiful deleveraging” Dalio speaks of.

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Has that changed of late? Is China starting to inject nan basal stimulus?

That said – location are tentative signs that Beijing whitethorn beryllium starting to alteration their views connected this.

SCMP ran an interesting article past week that suggested China whitethorn commencement their ain type of QE – buying China authorities bonds to inject money into nan economy.

If this happens, this could beryllium a meaningful argumentation signal, though nan magnitude of QE needs to beryllium ample capable to move nan needle (given nan size of China’s existent property problem).

At nan aforesaid time, economical information is picking up, and China’s PMI shows signs of a rebound:

So… Has China bottomed? Is it clip to bargain China stocks / existent property dividend plays?

Short reply is that I don’t know. Nobody knows.

The longer answer, is that China won’t bottommost until we spot what Ray Dalio coins nan “beautiful deleveraging”.

Or much simply – capable money printing to offset nan deflationary effect of nan existent property bust.

So far, we haven’t seen that.

But if nan PBOC does so commencement QE and money printing, that could very good change.

I’ve besides noticed that 15,000 connected nan Hang Seng Index seems to beryllium nan statement successful nan soil that argumentation makers will take sides astatine each costs, marking erstwhile they intervened successful some Nov 2022 and Jan 2024.

This coincidentally is nan level that goes backmost to 1997, truthful location whitethorn beryllium a “face” constituent to it successful not letting nan Hang Seng autumn beneath nan level erstwhile Hong Kong was reunited pinch China successful 1997.

This could beryllium a cardinal trading awesome successful nan consciousness that argumentation makers whitethorn not tolerate a large driblet from here.

 

So nary uncertainty China assets are cheap.

But arsenic of today, we still don’t cognize if they will spell done a “beautiful deleveraging” (in which lawsuit it would beryllium a buy), aliases if they will spell done a Japan style mislaid decade (in which lawsuit location is nary hurry to buy).

Macro – Interest complaint outlook for existent estate? (affects CapitaLand’s world portfolio ex China)

We’ve discussed liking rates to decease elsewhere, truthful I won’t belabour nan point.

Do mention to nan different articles connected FH Premium that talk liking rates.

Micro – Is CapitaLand Investment executing good arsenic a company?

To springiness in installments wherever in installments is due.

I really deliberation CapitaLand Investment is executing well.

Management has been actively trying to toggle shape into an plus light, existent property money head exemplary for illustration Blackrock / Blackstone.

And you tin spot from nan charts beneath that this is paying dividends, arsenic an progressively ample information of their profits comes from interest based income (from managing existent estate).

This is good, arsenic it provides a unchangeable interest based income to soft retired nan volatility from shifts successful existent property prices (while besides providing upside imaginable if existent property prices recover).

CapitaLand Investment doesn’t person immoderate liquidity issues – problem is 1 of profitability

Balance expanse is decent capable (for this climate).

Debt to equity is 0.56x.

Net indebtedness to assets is 32%, which is little leverage than galore REITs.

I’ve been saying that nan problem pinch existent property this rhythm is not nan liquidity consequence (like successful 2008).

None of nan existent property players person problems borrowing, nan problem is much of higher liking rates grinding down connected profitability and existent property prices.

Summing up my views connected CapitaLand Investment?

Will I bargain CapitaLand Investment stock?

Full disclosure that I utilized to person a position successful CapitaLand.

After nan “IPO” and stock value roseate to nan precocious 3s, I sold my full position.

And I’ve not bought it backmost since.

The problem pinch CapitaLand arsenic I spot it – is nan 34% AUM successful China.

And for that 34% China AUM, you’re only getting a 4.44% dividend output (without one-off dividends, location was nary successful 2023).

Let’s put it this way:

If I were bullish connected China, I would conscionable bargain a axenic China play for illustration CapitaLand China Trust aliases Hang Lung. They salary 8-9% dividend yields astatine existent prices, and connection 20-30% upside (or more) if China recovers.

If I were bullish connected Singapore existent estate, I would bargain REITs for illustration Ascendas REIT aliases CICT which salary 5.5% dividend yields, 1% higher than CapitaLand. Smaller caps for illustration Starhill Global REIT tin spell arsenic precocious arsenic 7-8% dividend yields.

If I were bullish connected US / European existent property (and I’m not), I would bargain circumstantial US aliases European focussed REITs, galore of which connection double digit dividend yields (assuming things play retired well).

In almost each scenario, location is simply a amended play than CapitaLand Investment.

The only script wherever CapitaLand genuinely shines, is if:

  1. China does well, and
  2. Global liking rates drop.

This happened successful early 2023, which is why nan stock value soared into nan precocious 3s then.

The mobility I suppose, is whether this is apt to hap again.

I don’t cognize nan reply to this, and if it does nary uncertainty I would alteration my mind connected this stock.

But moreover if it does, I wonderment if nan amended play is to bargain a handbasket of S-REITS and China focussed existent property plays instead.

You get a higher dividend output while you wait, and astir apt higher superior gains if things spell well.

Closing Thoughts: That said… CapitaLand guidance does look to beryllium executing well

For what it’s worth, I deliberation CapitaLand guidance is executing good successful transitioning into a interest based existent property manager.

The problems are not owed to their responsibility – a anemic China existent property market, and precocious world liking rates.

But arsenic an investor, I can’t abstracted nan guidance squad and nan macro climate.

As nan Warren Buffet quote goes: “When a head pinch a estimation for brilliance tackles a business pinch a estimation for bad economics, the estimation of nan business remains intact.”

There are structural challenges for some world existent property (higher liking rates) and China (deleveraging).

The benignant of AUM CapitaLand has exposes them to both.

No matter really bully guidance is, there’s only truthful overmuch you tin do erstwhile location are structural headwinds against you.

Frankly I don’t spot myself buying backmost into CapitaLand Investment.

I would alternatively conscionable bargain a handbasket of REITs (if I were betting connected little liking rates) and circumstantial China focussed existent property plays alternatively (if I were bullish connected China).

This would let maine to trim nonaccomplishment / return profit connected either thesis, alternatively of needing to person some thesis activity successful my favour to make money.

In immoderate case, I deliberation nan existent sell-off is simply a bully opportunity to adhd to banal / REIT positions.

I’ve shared connected FH Premium nan individual stocks / REITs I americium keen to adhd (with unsmooth target pricing), and I besides stock my latest individual portfolio.

Note that this FH Premium article was written successful early April, truthful immoderate of nan charts are somewhat outdated – but nan thought process remains relevant.

If you find this useful – do motion up for FH Premium for much premium articles for illustration this.

I stock my latest macro thinking, arsenic good arsenic my Stock / REIT watchlist and individual portfolio, connected FH Premium.

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