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Understanding CapitaLand Limited From An Investor’s Perspective

CapitaLand Limited (SGX: C31) is one of Asia’s largest real estate companies with a presence in Singapore, China, Indonesia, Malaysia and Vietnam. It is listed on the Singapore Exchange with a market capitalization of over S$13 billion.

The company has a diversified suite of real estate businesses. This includes the development of residential and commercial properties, as well as the ownership and management of retail malls, offices, and hospitality properties. In addition, CapitaLand has a number of Singapore-listed trusts under its umbrella and these include:

  • CapitaLand Mall Trust (SGX: C38U), a real estate investment trust (REIT) that owns and manages mainly retail malls in Singapore.
  • CapitaLand Commercial Trust (SGX: C61U), a REIT with a portfolio of predominantly Singapore commercial/retail buildings.
  • Ascott Residence Trust (SGX: A68U), a REIT that holds hospitality-related properties (such as serviced residences) in the U.S., Europe, Asia, and Australia.
  • CapitaLand Retail China Trust (SGX: AU8U), a China-focused REIT that owns a portfolio of retail malls in the country.

2015 was a year in which the Singapore stock market, as represented by the Straits Times Index (SGX: ^STI), fell by 14%. CapitaLand, however, bucked the trend with a gain, albeit a meagre one of just 1.4%.

Let’s analyze the company’s financials to understand if it may be a potential investing opportunity now. For this we will be using four metrics, namely the price to earnings (P/E) ratio, price to book (P/B) ratio, net debt to equity ratio, and dividend yield.

CapitaLand has a trailing 12 months (TTM) earnings per share of S$0.288, according to S&P Capital IQ. With the company’s current share price of S$3.14, this implies a P/E ratio of 11. This is on par with the P/E ratio of the SPDR STI ETF (SGX: ES3) – an exchange-traded fund tracking the Straits Times Index – which stands at 11.

As at the end of the third-quarter of 2015, CapitaLand has a net asset value per share of S$4.14. This would mean that the company has a P/B ratio of 0.76 at its current share price. What this means is that investors are able to buy the company’s assets, net of all liabilities, at a discount at the moment. Investors might thus be able to get a margin of safety with CapitaLand.

Moving on, CapitaLand had net debt (total borrowings minus cash) of S$12.5 billion and equity of S$24.5 billion as of 30 September 2015. This would imply a net debt to equity ratio of 51%, which is on the high side, in my opinion.

Lastly, the company has a dividend yield of 2.9% based on its 2014 annual dividend of S$0.09 per share. It’s worth noting that CapitaLand’s ordinary dividend has been growing over the past few years, rising in 1 cent per share increments in each year from S$0.06 per share in 2011 to S$0.09 in 2014.

Foolish Takeaway

In looking at the four metrics, the negatives appear to outweigh the positives. While CapitaLand’s low P/B ratio may give investors some margin of safety, its high net debt to equity ratio could add some risk. Moreover, CapitaLand’s P/E ratio and dividend yield are not very attractive.

To sum it up, the four metrics seem to suggest that CapitaLand may not be a potential investing opportunity for investors currently. That being said, a deeper look will still be required before any firm investing conclusion can be reached – the four metrics only represent a useful starting point for further research.

Meanwhile, if you'd like more investing analyses and important updates about the stock market, you can sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Esjay does not own shares in any companies mentioned.