Fears over policy risks in China and Singapore and the outflow of funds from Asian markets could well be the key factors behind CapitaLand’s weak share price in recent times. In our opinion, the market has overpriced the downside risks. But we remain positive on CapitaLand’s long-term investment strategies and do not expect major earnings surprises when it reports FY10 results next Tuesday. We have a full-year PATMI forecast of $918.5m. Maintain BUY.
To counter stubbornly high property prices that have been partly driven by liquidity, the Chinese government has rolled out several rounds of cooling measures. CapitaLand maintains a positive longterm view on the Chinese market, where its cost base is relatively low. We estimate that residential property prices will have to correct by more than 40% before its projects go into the red. However, such a scenario is highly unlikely in our view.
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