Thursday, September 19th, 2024
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CapitaLand Investment, CapitaLand Integrated Commercial Trust, and Dyna-Mac Holdings – Key Investment Insights

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CapitaLand Investment, CapitaLand Integrated Commercial Trust, and Dyna-Mac Holdings – Key Investment Insights

CapitaLand Investment Limited (SGX: 9CI): Strategic Asset Recycling for Growth

Recommendation: BUY

  • Target Price: S$3.50
  • Date of Recommendation: September 3, 2024
  • Broker Company: Lim & Tan Securities

Investment Thesis:

CapitaLand Investment Limited (CLI) is a leading global real estate investment manager with a strong focus on generating sustainable returns through its asset-light strategy. The company’s recent agreement to divest its 50% stake in ION Orchard to its sponsored real estate investment trust, CapitaLand Integrated Commercial Trust (CICT), is a testament to CLI’s ongoing commitment to recycling capital for future growth opportunities.

Key factors driving this investment opportunity include:

  • Strategic Asset Recycling: The divestment of ION Orchard is aligned with CLI’s asset-light growth strategy, which aims to grow its funds under management (FUM) by S$1.85 billion. The sale consideration of approximately S$1.08 billion will be recycled towards future growth opportunities, allowing CLI to further diversify its portfolio across geographies and asset classes.
  • Strong Sponsor Support for CICT: CLI has undertaken to fully subscribe to its pro-rata entitlement for the preferential offering as part of the funding for CICT to acquire ION Orchard. This move reinforces CLI’s strong sponsor support for CICT, further strengthening CICT’s market position as the largest proxy for high-quality Singapore commercial real estate.
  • Consistent Capital Recycling: With the completion of this divestment, CLI will have recycled S$3.6 billion year-to-date, exceeding its annual capital recycling target of S$3 billion. This disciplined execution of its asset-light strategy highlights CLI’s ability to unlock value from its portfolio while continuing to grow its stable recurring income streams.

Financial Performance:

CLI’s market cap stands at S$14.0 billion, and it currently trades at 18.6x forward PE and 1.0x PB, with a dividend yield of 4.5%. The company’s strong track record of capital recycling and share buybacks underlines its commitment to enhancing shareholder value.

Valuation and Catalysts:

The target price of S$3.50 represents a 30.1% upside from the current share price, reflecting CLI’s ability to unlock value through strategic divestments and reinvestments. With the negativity priced in and share buybacks in place, CLI continues to grow its stable recurring income streams, making it an attractive investment.

CapitaLand Integrated Commercial Trust (SGX: C38U): Enhancing Portfolio Quality with ION Orchard Acquisition

Recommendation: BUY

  • Target Price: S$2.50
  • Date of Recommendation: September 3, 2024
  • Broker Company: Lim & Tan Securities

Investment Thesis:

CapitaLand Integrated Commercial Trust (CICT) is one of Singapore’s largest and most diversified REITs, with a focus on high-quality commercial real estate. The proposed acquisition of ION Orchard, a dominant retail landmark, will further enhance CICT’s portfolio, strengthening its market position and providing long-term value to unitholders.

Key factors driving this investment opportunity include:

  • Strategic Portfolio Enhancement: The acquisition of ION Orchard is expected to enhance the quality of CICT’s portfolio by adding a premium retail asset located at the heart of Orchard Road. This iconic mall, with a net lettable area of approximately 623,600 square feet, is home to nearly 300 international and local brands, offering a unique shopping experience.
  • Strong Sponsor Support: CLI’s commitment to fully subscribe to its pro-rata entitlement for the preferential offering underscores the strong sponsor support for CICT. This support is crucial for the successful completion of the acquisition and the continued growth of CICT’s portfolio.
  • Resilient Income Streams: The acquisition of ION Orchard is expected to contribute stable and recurring income streams to CICT, further enhancing its distribution per unit (DPU) and providing unitholders with attractive returns.

Valuation and Catalysts:

The target price of S$2.50 reflects CICT’s strong market position and the expected benefits from the acquisition of ION Orchard. The REIT’s ability to consistently deliver higher DPUs, even in a hawkish environment, makes it an attractive investment for income-focused investors.

Dyna-Mac Holdings Ltd (SGX: NO4): Riding the FPSO Market Boom

Recommendation: BUY

  • Target Price: S$0.72
  • Date of Recommendation: September 3, 2024
  • Broker Company: Lim & Tan Securities

Investment Thesis:

Dyna-Mac Holdings Ltd, a leading provider of engineering, fabrication, and construction services for the offshore and marine sector, has reported strong earnings growth driven by the buoyant Floating Production Storage and Offloading (FPSO) market. The company’s expanded yard capacity and strong order book position it well for continued growth in the coming years.

Key factors driving this investment opportunity include:

  • Strong 1H24 Performance: Dyna-Mac’s 1H24 revenue and net profit significantly outperformed expectations, forming approximately 63% and 108% of the FY24 targets, respectively. The outperformance was driven by higher operating leverage, increased order volumes, and the completion of major contracts, made possible by the expansion of its yard capacity.
  • Healthy Order Book: With an order book of S$681.3 million as of June 2024, Dyna-Mac has secured sustained market demand for its FPSO topside modules, providing earnings visibility through FY2026. The company continues to receive strong inquiries from both new and repeat customers, with the potential to secure further order book wins with better margins.
  • Expansion and Efficiency Gains: The new and larger yard facilities have not only improved productivity but also allowed Dyna-Mac to take on new projects from adjacent sectors, such as carbon capture and storage technologies and hydrogen solutions. The yard expansion, expected to complete by 1H25, will further enhance the company’s capabilities and competitiveness.

Financial Performance:

Dyna-Mac’s market cap stands at S$589 million, and it currently trades at 8.3x FY24 PE. The company’s balance sheet remains strong, with S$308 million in net cash, providing flexibility for strategic M&A opportunities to further expand its business and order book.

Valuation and Catalysts:

The revised target price of S$0.72, pegged to 11x FY24E, represents a 32.5% upside potential. The favorable outlook for the FPSO market, combined with Dyna-Mac’s strong order book and expanded yard capacity, makes it a compelling investment opportunity.

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