The Motley Fool

Better Buy: CapitaLand vs. City Developments

CapitaLand Limited (SGX: C31) and City Developments Limited (SGX: C09), or CDL, are two large listed real estate giants. Each has wide-ranging operations spanning many countries in Asia, and both also deal with different property types. So, which company will provide investors with better exposure and overall improved prospects as an investment idea? Here’s what I think.

Source: CapitaLand and CDL FY 2018 Earnings

Our FREE SGX stock pick!

chart

We reveal 1 fast growing, Singapore stock pick flying under the radar, absolutely FREE!

The table above shows the market capitalisation of each of the companies as well as the full-year 2018 revenue and net profit figures. The market capitalisation is calculated using the closing price as of 14 June 2019.

Property types

The first round looks at the exposure to different types of properties within each company’s portfolio. This gives a sense of how diversified each player is, and different classes of properties are also able to buffer one another in case of stress in one sub-segment (e.g. hotels).

Source: CapitaLand and CDL Q1 2019 Presentation Slides

From the table, it can be seen that CapitaLand has a wider range of property types compared to CDL, as it also deals with serviced residences and retail in addition to hotels, commercial properties (i.e. offices) and residential.

Winner: CapitaLand

Profitability

Next, I assessed the profitability of each company using gross margins, operating margins and net margins.

Source: Q1 2019 Earnings for both companies

CapitaLand has better gross and net margins compared to CDL, implying that CapitaLand has better overall control of its expenses and pricing power for its development projects compared to CDL.

Winner: CapitaLand

Valuation

In the final round, I compared the valuations of each company to see which is more expensive and also assessed the dividend yields to see how attractive each might be to income-driven investors.

Source: Q1 2019 and FY 2018 Earnings for both companies

It appears that CapitaLand is a fair bit cheaper than CDL on a price-to-book basis and is trading at a 25% discount to its book value of S$4.55 per share. It also boasts a dividend yield of 3.5%, paid once a year, which is higher than CDL’s 2.1% dividend yield. However, investors should note that CDL pays dividends twice a year.

Winner: CapitaLand

The Foolish summary

CapitaLand comes out on top as and appears to be the more attractive real estate company to own. However, investors need to also look at other aspects of each company, such as the size of its land bank, development pipeline, return on equity and free cash flow generation. Based on the additional information, they can then decide which would be the better investment to suit their needs.

Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended the shares of CapitaLand Limited and City Developments Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.