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
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.
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.
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.
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.
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.
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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.