Is CapitaLand’s 12% stock upside potential justified?

• CapitaLand Ltd (SGX: C31) rallied to S$3.75 on Wednesday (07 July 2021)
• The property group launched its second S$400 million logistics private fund in India
• The fund is part of the group’s plans to expand its logistics portfolio in India over the next four years
• Analysts foresee a 12% upside potential on the stock in the next 12 months
• Interested to go long or short on CapitaLand shares without having to put up the full cost? Contracts for Differences (CFDs) allow you to do that. Open an account with us to get started today.

CapitaLand stock price: What’s the latest?

CapitaLand shares rose slightly after announcing its second logistics private fund in India on Wednesday.

The property group launched a new S$400 million fund aimed at expanding its presence in India’s logistics sector, which is forecasted to expand at a compound annual growth rate of 10.5% between 2019 and 2025.

The CapitaLand India Logistics Fund II will invest in the development of logistics assets in key warehousing and manufacturing hubs in six major cities across the country - Ahmedabad, Bangalore, Chennai, Mumbai, National Capital Region (NCR), and Pune, as well as in emerging markets such as Coimbatore, Guwahati, Jaipur, Kolkata and Lucknow.

The fund will grow CapitaLand’s current total Funds Under Management (FUM) of S$79.2 billion across over 20 private funds and six listed trusts.

Mr Jonathan Yap, President, CapitaLand Financial, CapitaLand Group, who oversees CapitaLand’s business in India, said the group sees ‘significant opportunities’ in India’s logistics sector, which has continued to thrive despite the pandemic.

In total, the group is targeting to ‘develop a logistics portfolio of 20 to 25 million sq ft of space in India by 2025’, he added.

CapitaLand’s first logistics private fund, the S$400 million Ascendas India Logistics Programme, was launched in 2018.

How do analysts view the stock?

The blue-chip counter is up 14% year to date. The latest analyst sentiments published by SGX StockFacts show a consensus rating slightly higher than ‘outperform’ and price target of S$4.20 on the stock.

The price target represents a 12.3% upside potential from CapitaLand’s last traded price of S$3.74 as at 14:50 SGT on Wednesday.

The latest investment thesis came from CIMB analysts on 10 June. They reiterated an ‘add’ rating and target price of S$4.04, naming it among their preferred picks for the property sector.

The analysts stated that they retain a bullish view on the sector, as developers’ valuations ‘still look inexpensive’, currently trading at a 45% discount to RNAV, close to one standard deviation below long-term mean discount.

‘We prefer developers with a high recurring cash flow base and strong balance sheets that would enable them to tap into any opportunities during this slower cycle,’ they wrote in a client note.

Downside risks, however, include faster-than-expected rate hikes, and a weaker-than-expected macroeconomic outlook, which ‘could dampen the demand for big-ticket items such as housing’.

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