CapitaLand

CapitaLand: strong 2Q10 results. 2Q10 PATMI was $476m vs loss of $157m in 2Q09, boosted by $204m revaluation gain from ION Orchard and various Raffles City projects in China. Core PATMI of $272m (+119% yoy) was better than expected due to faster development profit booking from The Seafront and Latitude in Singapore. Sales momentum remained strong across Singapore, China and Vietnam...

Earlier concerns over CLand’s OODL portfolio should be allayed, following the successful launch of its first project The Metropolis in Kunshan, which sold 74% of the 299 units released at ASP of RMB 10800 psm, 35% ahead of our expectations...

CLand intends to invest up to $500m in a new business unit that provides affordable housing (target 30-50k units annually) in China and Vietnam. We this as a positive diversification into a more sustainable, albeit lower-margin business. CLand’s warchest of $4.9bn gives its substantial acquisition firepower to grow China to 35-45% of its business and to increase total assets in Vietnam from the $400m currently to ~$2bn over the next 3-5 yrs…

Progressive profit recognition from locked-in sales (eg. The Wharf and Interlace), new launches (eg. Farrer Court and The Nassim in Singapore, Beau Rivage in Vietnam and Pinnacle in Shanghai) and an enlarged and refurbished Ascott property portfolio should underpinned earnings over next 6-12 mths. KE maintains BUY with a target price of $5.00, pegged to 1.15x P/NAV.