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Profits Slip 0.7% at CapitaLand

Capitaland_logo Real-estate company CapitaLand (SGX: C31) reported its second quarter results this morning and posted a 0.7% year-on-year slide in quarterly profit to S$383.1m. Revenue increased by 37.1% to S$1.18b.

CapitaLand saw higher revenue from all four of its business units; CapitaLand Singapore; CapitaLand China; CapitaMalls Asia (SGX: JS8); and The Ascott Limited.

CLS’s top-line improved by 33% as residential projects like The Interlace, Urban Resort Condominium, Sky Habitat and Bedok Residences all saw higher sales or increased revenue recognition.

Meanwhile, CLC’s revenue was up by 44% as a larger number of apartment units were transferred to the hands of home buyers in China.

CMA, a subsidiary of CapitaLand which focuses on retail malls, saw its revenue for the quarter benefitting from an increase in management fees from fund, project and property management as well higher rental incomes from the malls that it owns.

Finally, Ascott, which is in charge of serviced residences, saw its revenue grow due to contributions from newly acquired residences.

There were several factors at play leading up to CapitaLand’s slight profit decline for the quarter compared to a year ago. The company’s share of results from associates and joint ventures had increased by 24.4% to S$401.4m while financing costs (which includes interest payments on debt) decreased by 20.5% to S$116.2m.

These improvements helped to balance a decline elsewhere. Capitaland had seen a 27.3% drop in quarterly operating profit to S$289.1m and a chief reason for the drop was because of a 40% slide to S$112.7m in CapitaLand’s portfolio gains and fair value gains on investment properties. Combine these factors together, and they ultimately led to the slight profit decline.

Management thinks the company’s finances are in good shape with a health balance sheet – CapitaLand’s net debt to equity ratio stands at 0.45 and it has a cash hoard of S$5.2b.

Going forward, CapitaLand sees “some headwinds for the private residential property market in the near term” in Singapore, one out of the company’s three key markets. But, it still sees net positives in the housing market over the long-term, underpinned by Singapore’s strong economic fundamentals and rising population.

Over in China, the other key market for CapitaLand, the company remains positive. It sees China’s increasing affluence among her population as well as growing consumption demands as a key driver for new opportunities for the company in the residential, commercial and retail property field among others.

As for Malaysia, alongside Singapore and China, CMA is “on track to open new malls as well as explore opportunities to deepen its presence in existing markets”,

Lim Ming Yan, President and Chief Executive Officer of CapitaLand, added, “We will continue to focus on our core markets of Singapore and China to develop homes, offices, shopping malls, serviced residences and mixed developments. We aim to further expand and entrench our leading position in integrated and mixed developments in line with our core competencies and macro trends in Asia.”

He went on, saying “In China, we will focus on five city clusters. This sharper focus will put us in an even stronger position to seize opportunities as a group, reap more economies of scale and invest in product innovation. With the realignment of the Group in January this year, I am confident that we will be able to improve operating performance and profitability as well as further grow the business and our brand premium.”

The market did not seem to like CapitLand’s earnings release too much as it opened at $3.19, 0.6% lower compared to Wednesday’s close. At that price, shares of CapitaLand are selling for 14 times historical earnings and carrying a dividend yield of 2.2% based on 2012’s annual pay-out.

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