Singapore Property Sector - WordPress.com · Source: URA, Thomson Reuters, Credit Suisse research...

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26 November 2015

Asia Pacific/Singapore

Equity Research

Real Estate (Property SG (Asia))

Singapore Property Sector ASSUMING COVERAGE

Awaiting the silver bullet

Figure 1: Oversupply to persist well into 2019E, given record net supply vs slowing population growth

88

90

92

94

96

98

100

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

2016

E

2017

E

2018

E

2019

E

Net demand less Net supply - LHS Occupancy (%) - RHS

Units %

Governmentundersupplied

the market

Source: URA, HDB, Singstat, Credit Suisse estimates

■ We assume coverage of the Singapore property developers sector with

City Developments (OUTPERFORM) and CapitaLand (NEUTRAL).

■ Persistent oversupply could pave the way for easing in 2H16. We

expect average net demand of 17,841 units over 2015-19E to be materially

below the average net supply of 40,990 units, resulting in an oversupply well

into 2019. This is likely to put downward pressure on occupancies, rents and

capital values, leading to price declines of 5-10% in 2016E. Arguably, such

an outcome could then lay the stage for a re-calibration of property

measures, especially as speculative activity and foreign demand have been

curbed, while income growth has outpaced home prices.

■ Value unlocking is key; CDL (OUTPERFORM, TP S$12.00) is our top pick.

Based on our view that the Singapore residential market is likely to deteriorate

further before an eventual easing improves sentiment, corporate action to

unlock value should be the key share price driver in the near term. In our view,

CDL has an under-appreciated asset portfolio, e.g., its S$3.9 bn Singapore

office assets. As at Sep-2015, CDL's investment properties were held at

historical cost of S$3.1 bn vs our estimated value of S$7.6 bn. Capital

recycling initiatives would be a key near-term catalyst to crystallise value, with

valuation attractive at 0.79x P/B (-1.4 SD from the historical average).

■ Greater uncertainties on the road to growth for CapitaLand (NEUTRAL,

TP S$3.50). While CapitaLand's valuation looks undemanding, we believe

potential upside is limited, given the uncertainty around near-term earnings

and the achievement of an ROE target of 8-12%, and execution risks.

Research Analysts

Louis Chua

65 6212 5721

[email protected]

Nicholas Teh

65 6212 3026

[email protected]

Daniel Lim

65 6212 3011

[email protected]

26 November 2015

Singapore Property Sector 2

Focus charts Figure 2: We expect price declines of 5-10% in 2016E, with a relative preference for the high-end segment (CCR)

Figure 3: We expect a re-calibration of cooling measures in 2H16, likely on stamp duty measures (SSD, ABSD)

60

80

100

120

140

160

180

Mar-0

4Se

p-04

Mar-0

5Se

p-05

Mar-0

6Se

p-06

Mar-0

7Se

p-07

Mar-0

8Se

p-08

Mar-0

9Se

p-09

Mar-1

0Se

p-10

Mar-1

1Se

p-11

Mar-1

2Se

p-12

Mar-1

3Se

p-13

Mar-1

4Se

p-14

Mar-1

5Se

p-15

Mar-1

6Se

p-16

Residential Price Index CCR OCR RCR

Index

Source: URA, HDB, Credit Suisse estimates Source: URA, MAS, Credit Suisse research

Figure 4: Improved sentiment a key rerating catalyst for developers, though bottom-up drivers remain key

Figure 5: Singapore residential only represents 5% of our GAV estimate for CapitaLand

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

-

1,000

2,000

3,000

4,000

5,000

6,000

1Q95

1Q96

1Q97

1Q98

1Q99

1Q00

1Q01

1Q02

1Q03

1Q04

1Q05

1Q06

1Q07

1Q08

1Q09

1Q10

1Q11

1Q12

1Q13

1Q14

1Q15

Secondary sales (1 yr MA) CDL share price - RHS

CL China27%

CL Singapore12%

CMA41%

Ascott9%

Management fee5%

Others6% ~14% residential

~5% residential

Source: URA, Thomson Reuters, Credit Suisse research *2015E; Source: Company data, Credit Suisse estimates

Figure 6: CDL—concerns about SG residential overdone, with significant value in investment properties to unlock

Figure 7: CDL—valuation attractive at 0.79x P/B (-1.4 SD from average), with assets held at historical costs

Singapore Office29%

Singapore Residential

24%

Hospitality20%

Overseas Residential

11%

Singapore Retail9%

Others7%

Composition of CDL's GAV

0.79

1.87

2.65

1.08

0.00.51.01.52.02.53.03.54.04.55.0

Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12

City Dev. - P/B Average - 1.87 ±1 std. dev.

P/B

* CDL GAV estimate. Source: Company data, Credit Suisse estimates Source: Thomson Reuters, Credit Suisse estimates

26 November 2015


Awaiting the silver bullet Oversupply to persist well into 2019 The troubles of the Singapore residential market have been characterised by record supply additions against a slowing population. Based on our proprietary demand-supply model, we believe the oversupply situation in the residential market will persist well into 2019, given that average net demand of 17,841 units from 2015E to 2019E continues to be materially below the net supply of 40,990 units on average, adding downward pressure to occupancies, rents, and capital values. In the absence of a macroeconomic crisis, however, we believe that prices are unlikely to fall off a cliff and expect price declines of 5-10% in 2016E, with a relative preference for the high-end market segment. Arguably, such an outcome could then lay the stage for an easing of cooling measures later in the year.

Expect an easing in 2H16, but bottom-up stock drivers remain key In our view, the time is ripe for an easing of some of the measures, given that specific policy intent of these measures has been achieved: (1) speculative activities have fallen, (2) foreign demand has been curbed, and (3) income growth has now outpaced home prices. Against rising interest rates, a weakening labour market and persistent oversupply, we think a pre-emptive re-calibration of measures, rather than ex-post corrective action will better achieve a stable and sustainable property market. With the TDSR framework expected to be in place for the long term, we believe a re-calibration of stamp duty measures (ABSD, SSD) is most probable. In our view, this will likely drive greater transaction volumes, and increase liquidity in the secondary market. An improvement in sentiment would be a critical outcome, with a re-calibration of cooling measures being the proverbial "silver bullet"—acting as a key rerating catalyst for developers. Regardless of whether there will be a re-calibration, we believe that bottom-up drivers play a far greater role for CDL and CAPL, given the greater relevance of the non-Singapore residential segment for these integrated developers. CDL and CAPL are sufficiently diversified—for them Singapore residential only comprises 24% and 5% of our GAV estimates, respectively. Assuming residential prices would fall a further 20% from our estimates, RNAV for CDL and CAPL will only decline 5% and 2%, respectively.

CDL: Top pick; multiple catalysts ahead We assume coverage of City Developments (CDL) with an OUTPERFORM rating and a TP of S$12.00. We believe CDL is best positioned for a turnaround in the Singapore residential market sentiment in 2016, yet with current concerns overdone. Further, we believe CDL has an underappreciated portfolio of investment properties, including its Singapore office assets worth S$3.9 bn. Capital recycling initiatives would be a key near-term catalyst, allowing CDL to: (1) realise a healthy gain on divestment, (2) crystallise balance sheet value, and (3) recycle cash proceeds for investments. Valuations are attractive at 0.79x P/B (-1.4 SD from the average), especially with its assets held at historical costs.

CAPL: Uncertainties on the road to growth We assume coverage of CapitaLand (CAPL) with a NEUTRAL rating and a TP of S$3.50. While CAPL's earnings growth should be underpinned by the fruition of its prior investments, execution over the next few years will be key. We expect core ROEs to improve marginally from 4.3% in 2014 to 5.6% in 2017E; however, we have less conviction for headline ROEs to reach management's medium-term target of 8-12% in 2016E. While valuations are undemanding at 0.76x P/B (-0.5 SD from the average), we think near-term upside is limited, given the uncertainty around near-term earnings (only +3% core earnings growth in 2015E) and the achievement of management's ROE targets, and the execution risk on the sizeable S$6.9 bn (100% basis) pipeline of projects due for completion.

We expect an oversupply well into 2019, with price declines of 5-10% in 2016E; which could lay the stage for an easing of measures

A re-calibration of measures will be a key rerating catalyst for developers

Regardless, bottom-up drivers play a far greater role for CDL and CAPL

CDL best positioned for a turnaround in sentiment, with corporate action to unlock value a key near-term catalyst

While CAPL's valuations are undemanding, we believe upside is limited

26 N

ovember 2015


Valuation summary Figure 8: Developers and REITs—valuation summary

Ticker Up/ Mkt Cap RNAV Disc to ROE (%) P/B Net Debt/ 6M ADTDevelopers Rating LC TP Dn (%) (S$ mn) (S$) RNAV (%)T+1 T+2 T+3 T+1 T+2 T+1 (x) Equity (%) (S$mn)CAPL SP Capitaland N 3.13 3.50 12 13,379 4.21 26 18.4 14.5 12.7 2.9 2.9 4.2 0.76 51 39.8CIT SP City Dev elopments O 7.52 12.00 60 6,838 12.85 41 13.5 9.7 9.2 1.7 1.7 5.8 0.79 30 14.2FCL SP Frasers Centrepoint Ltd NR 1.65 n.a. n.a. 4,777 n.a. n.a. 8.4 7.9 8.0 4.4 4.4 8.3 0.73 84 0.4UOL SP UOL Group NR 6.16 n.a. n.a. 4,905 n.a. n.a. 11.5 11.1 10.7 2.5 2.5 5.4 0.63 31 7.8OUE SP Ov erseas Union Ent. NR 1.79 n.a. n.a. 1,757 n.a. n.a. 20.1 19.2 29.8 3.2 1.8 2.0 0.41 44 0.9GUOL SP Guocoland NR 1.85 n.a. n.a. 2,189 n.a. n.a. 20.1 14.6 9.6 3.5 3.1 3.1 0.61 60 0.4HOBEE SP Ho Bee Inv estment NR 2.01 n.a. n.a. 1,414 n.a. n.a. 19.5 17.2 11.8 2.7 2.7 2.6 0.51 50 0.3WINGT SP Wing Tai Asia NR 1.72 n.a. n.a. 1,362 n.a. n.a. 17.5 15.2 18.1 2.6 2.6 2.9 0.41 10 1.6Average 16.1 13.7 13.7 2.9 2.7 4.3 0.61 45Ticker Up/ Mkt Cap P/B Total Debt/ 6M ADTREITs Rating LC TP Dn (%) (S$ mn) SponsorStake (%) T+1 T+2 T+3 T+1 T+2 T+3 (x) Asset (%) (S$mn)CT SP CapitaMall Trust O 1.89 2.30 22 6,675 CapitaLan 28% 11.1 11.5 12.0 5.9 6.1 6.4 1.05 33.8 21.5MCT SP Mapletree Comm. Trust O 1.28 1.62 27 2,713 Mapletree 38% 8.1 8.3 8.5 6.4 6.5 6.6 1.03 36.4 3.1SPHREIT SP SPH REIT N 0.93 1.10 19 2,344 SPH 70% 5.5 5.6 5.6 5.9 6.0 6.1 0.99 26.0 1.2FCT SP Frasers Centrepoint Trust O 1.88 2.24 19 1,720 FCL 38% 11.7 12.0 12.2 6.2 6.4 6.5 1.01 28.6 2.9CCT SP CapitaCommercial Trust U 1.31 1.43 9 3,868 CapitaLan 32% 8.5 8.8 9.1 6.5 6.7 6.9 0.74 34.8 14.0SUN SP Suntec REIT U 1.55 1.54 -1 3,917 - 9.6 9.8 10.2 6.2 6.3 6.6 0.68 42.4 6.8KREIT SP KREIT N 0.94 1.11 18 3,021 Keppel La 45% 6.8 6.8 7.0 7.3 7.2 7.4 0.84 37.2 1.4AREIT SP Ascendas REIT O 2.32 2.60 12 5,590 Ascendas 16% 15.3 16.2 16.7 6.6 7.0 7.2 0.99 34.3 3.8MLT SP Mapletree Logistics Trust N 1.02 1.08 6 2,528 Mapletree 41% 7.4 7.3 7.4 7.2 7.2 7.2 1.16 30.6 4.5MINT SP Mapletree Industrial Trust O 1.53 1.74 14 2,709 Mapletree 30% 10.6 11.1 11.6 6.9 7.3 7.6 0.94 36.6 1.8ART SP Ascott REIT N 1.19 1.37 15 1,843 CapitaLan 35% 7.9 8.2 8.3 6.6 6.9 6.9 0.82 32.3 2.2CDREIT SP CDL Hospitality Trusts N 1.32 1.66 26 1,303 M&C (CD 34% 10.6 11.0 11.2 8.0 8.3 8.5 0.64 31.4 0.6OUEHT SP OUE Hospitality Trust N 0.80 0.94 18 1,062 OUE 39% 6.7 6.6 6.7 8.4 8.4 8.4 0.90 38.4 0.4KDCREIT SP Keppel DC REIT O 1.05 1.17 11 927 Keppel T 30% 6.6 7.1 7.1 6.3 6.8 6.8 1.21 27.8 2.8

Price (S$) P/E (x) Yield (%)

Price (S$) DPU (cts) Yield (%)

Priced as at 24 November 2015. Note: O = OUTPERFORM, N = NEUTRAL, U = UNDERPERFORM, NR = NON RATED. Source: Company data, IBES, Credit Suisse estimates

26 November 2015


Oversupply to persist well into 2019

The troubles of the Singapore residential market have been characterised by record supply additions against a slowing population. We have thus built a comprehensive proprietary demand-supply model on the Singapore residential market, to ascertain the impact on physical occupancies in the system, and hence its implications for rentals and capital values.

Based on our base-case assumptions, we believe that the oversupply situation in the residential market will persist well into 2019E, given that average net demand of 17,841 units from 2015E to 2019E continues to be materially below the substantial net supply of 40,990 units on average. As a result, we expect physical occupancy to continue its pace of decline, exerting downward pressure on rents and capital values.

In the absence of a broader macroeconomic crisis, however, we believe that prices are unlikely to fall off a cliff, given that the price declines that we have seen since 2013 are to a certain extent "engineered" by the government, in order to achieve its target of a soft landing in the residential market. Overall, we expect price declines of 5-10% in 2016E, with a relative preference for the high end market segment. Arguably, such an outcome could then lay the stage for an easing of cooling measures later in the year.

Record net supply to persist Within the private residential and executive condominium (EC) market, our supply projections are based on the pipeline of units under construction or planned as compiled by the Urban Redevelopment Authority (URA).

While the government has tapered the supply of new residential sites since 2013 through a reduced government land sales (GLS) programme, material private residential supply from sites awarded since 2H10 are expected to lead to record completions in 2016, with a projected c. 22,000 units expected to be completed. From 2015E to 2019E, we expect net private completions to average 15,176 units, significantly above the historical completions of 8,691 units.

Figure 9: Material private residential GLS supply over the last few years…

Figure 10: …expected to lead to record completions in 2016 at c. 22,000 units

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2H03

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

1H15

2H15

Units

Confirmed Reserve

8,691

-

5,000

10,000

15,000

20,000

25,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

2017

E20

18E

2019

E

Completed Under construction Planned '05-'14 average

Units

Source: URA, Credit Suisse estimates Source: URA, Credit Suisse estimates

We expect oversupply in the residential market to persist well into 2019E

Overall, we expect price declines of 5-10% in 2016E, with a relative preference for the high-end market segment

26 November 2015


The EC market represents a hybrid between public and private property, with new units having restrictions on ownership and resale similar to public flats. While there was a lack of EC completions prior to 2014, given the lack of new EC sites made available by the government, a similar increase in EC supply is expected after a strong GLS uptick in confirmed sites since 2010, with a cumulative 17,069 units expected from 2015E to 2019E.

Figure 11: A similar increase in EC supply is expected due to the GLS uptick…

Figure 12: …with substantial completions after a dearth of completions prior to 2014

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2H03

1H04

2H04

1H05

2H05

1H06

2H06

1H07

2H07

1H08

2H08

1H09

2H09

1H10

2H10

1H11

2H11

1H12

2H12

1H13

2H13

1H14

2H14

1H15

2H15

Units

Confirmed Reserve

618

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

2017

E20

18E

2019

E

Completed Expected completions '05-'14 average

Units


For the public market, our completion estimates are based on projections made by the Ministry of National Development, while further assuming a three-year completion period for launched projects into our net supply number.

In response to concerns about the lack of supply, as evidenced by the low HDB completions from 2004 to 2010, former National Development minister, Mr Khaw Boon Wan, sought to address the demand-supply imbalance in the public market, with a significant ramp-up up in government build-to-order (BTO) projects. As a result, HDB completions are expected to remain strong at the c. 25,000 units mark up to 2017E.

While the annual BTO launches have slowed since their peak in 2012, current National Development Minister, Mr Lawrence Wong, has recently commented that there could be "a slight adjustment from 15,000" (in 2015E), in order to accommodate higher demand in housing arising from policy changes, where we note that the income ceiling for the purchase of new HDB flats has been raised to S$10,000. We assume that 17,000 units will be launched in 2016E, which will lead to supply additions in 2019E.

HDB completions expected to remain strong at c. 25,000 units p.a. up to 2017E

26 November 2015


Figure 13: Ramp up in government BTO launches since 2009

Figure 14: Leading to meaningful supply additions from 2014

-

5,000

10,000

15,000

20,000

25,000

30,000

2008 2009 2010 2011 2012 2013 2014 2015E 2016E

Units

BTO launches

10,004

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

2017

E20

18E

2019

E

Completed Expected completions '05-'14 average

Units

Source: HDB, Credit Suisse estimates Source: HDB, Credit Suisse estimates

No let-up in system net supply up to 2019E

Cumulatively, the strong supply pipeline across the private, EC and HDB markets will in our view culminate in a record net supply situation, with net supply expected to peak in 2016E at 52,149 units, significantly above the past ten-year average of 19,082 units. As such, we expect total housing stock to reach 1.6 mn units in 2019E.

Figure 15: Record net supply expected to persist Figure 16: Housing stock to reach 1.6mn units in 2019E

19,082

-

10,000

20,000

30,000

40,000

50,000

60,000

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

2017

E20

18E

2019

E

Total Public (net) Total Private (net) '05-'14 average

Units

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E20

16E

2017

E20

18E

2019

E

'000 units

Public Private

Source: URA, HDB, Credit Suisse estimates Source: URA, HDB, Credit Suisse estimates

Housing demand: No rosy picture in sight We estimate population growth of 1.3% p.a. vs 2.8% over 2004-14

Fundamentally, we believe that new household formation represents the demand for housing, with population growth being a key driver of household formation in Singapore.

Population growth over the past decade has been driven by the growth of non-citizens, comprising permanent residents (PRs) and foreigners. This is not a surprise given the low resident fertility rate of 1.25. Based on the current population of 5.5 mn, the resident population of 3.9 mn comprises 3.4 mn Singapore citizens and 0.5 mn PRs, with the remaining 1.6 mn made up of foreigners.

Supply expected to peak in 2016E at 52,149 units, significantly above ten-year average of 19,082 units

6.7 mn population in 2030 will only imply population growth of 1.3% p.a. vs 2.8% over 2004-14

26 November 2015


However, even if we assume the population projections from the population white paper by the government in 2013 are achieved, i.e., a population of 5.8 mn to 6.0 mn by 2020 and 6.5 mn to 6.9 mn by 2030, total population is only expected to witness a CAGR of 1.3% vs a historical CAGR of 2.8% from 2004 to 2014.

Figure 17: Population growth driven by foreign population Figure 18: But we expect this to slow down going forward

Current population:

5,535

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E20

17E

2018

E20

19E

'000

Citizens Permanent Residents Foreigners

-5%

0%

5%

10%

15%

20%

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

E

2017

E

2018

E

2019

E

YoY

Total Population CitizensPermanent Residents Foreigners

Source: Singstat, Credit Suisse estimates Source: Singstat, Credit Suisse estimates

No "U-turn" in foreign population growth policy…

On this front, we note that the government narrative since 2011 (when it recorded its lowest share of the popular vote at 60.1%) has been clear, and we expect a slower immigration path to continue, despite a strong election result in 2015 where it won 69.9% of the popular vote. The number of new permanent residency and citizenships granted has also been stable at c. 20,000 and 30,000 annually, respectively.

Figure 19: We expect a slower immigration path to continue, despite the favourable election results

Figure 20: New permanent residency and citizenships granted has been holding steady since 2010

0-10%

-5%

0%

5%

10%

15%

20%

25%

30%

Jun-91 Jun-94 Jun-97 Jun-00 Jun-03 Jun-06 Jun-09 Jun-12 Jun-15

Election PR % YoY Foreigner % YoY

SARS

AFC

IRs and economic

growthGFC

Immigration tightening

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2007 2008 2009 2010 2011 2012 2013 2014

Number of Citizenships granted

Number of Permant Residents granted

Source: Singstat, Credit Suisse research Source: Singstat, Credit Suisse research

We expect a slower immigration path to continue, despite a strong election result in 2015

26 November 2015


…with a focus on growing the local talent pool

Immigration relevant to the housing market, particularly the private residential market, is that of PMETs (Professional, Managerial, Executive and Technicians). Foreigners of this variety would generally be adequately compensated (meeting cut-offs needed to have their family accompany them to Singapore and afford private property rentals), which would then contribute to increasing household demand.

However, there has been a significant focus placed on growing the local talent pool, with a suite of government initiatives rolled out to up-skill and raise the qualifications of the local population. Further, the government has also acknowledged the rising aspirations of citizens for a university degree, and aims to increase the proportion of students admitted into universities from the current 27% to 40% by 2020. Overall, the number of Singaporeans in PMET jobs is expected to increase by 50% from about 850,000 today to 1.25 mn by 2030.

In such a scenario, we believe it is unlikely that the government will ease controls on the immigration of high skilled workers.

Figure 21: % of Singapore student cohort admitted into tertiary institutions

Figure 22: Forecast demand for PMET and non-PMET jobs in Singapore citizens

0

5

10

15

20

25

30

35

40

45

50

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 … 2020E

% admitted to polytechnics % admitted to universities

850,000

1,250,000

850,000

650,000

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2011 2030

PMET Non-PMET

Source: Ministry of Manpower, Credit Suisse research Source: Population White Paper 2013, Credit Suisse research

Shrinking household sizes: A bright spot?

We highlight that average resident household sizes have been on a steady decline in Singapore, from 4.3 in 1990 to 3.43 as at 2014. Based on our estimates, the shrinkage of households has been a key driver of resident household formation and hence housing demand.

A focus on growing the local talent pool will limit immigration of PMETs, that which is relevant to the private residential market

26 November 2015


Figure 23: Resident household formation supported by the shrinking of households

2.0

2.5

3.0

3.5

4.0

4.5

(20,000)

(10,000)

-

10,000

20,000

30,000

40,000

50,00019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

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'Core' demand growth Impact of shrinking household size Avg household size (resident) - RHS


Putting it all together…an oversupply situation We have built a comprehensive proprietary demand-supply model on the Singapore residential market comprising the private and public markets, to ascertain the impact of rising supply against a slowing population growth to physical occupancies in the system, and hence its implications for rentals and capital values.

Our supply assumptions are based on the pipeline of units under construction or planned as compiled by the URA for private and EC supply, while public supply is based on MND projections, while assuming a three-year completion period for HDB BTO launches.

On demand, we have assumed a total population growth of 1.3% p.a., with the total population expected to reach 6.7 mn in 2030, in line with the government white paper projections of 6.5 mn to 6.9 mn by 2030. Our resident population growth assumptions will also imply a resident population of 4.3 mn in 2030, comprising 3.7 mn citizens and 0.6 mn permanent residents. We have also assumed average household sizes would shrink by 0.01 p.a. from 3.43 in 2014, in line with the past five-year averages.

Key conclusion: Vacancies to decline, oversupply to persist up to 2019E

Based on our base-case assumptions, we believe that after years of undersupply by the government, the oversupply situation in the residential market will persist well into 2019E, given that average net demand of 17,841 units from 2015E to 2019E continues to be materially below the substantial net supply of 40,990 units on average. As a result, we expect downward pressure on physical occupancies, with system occupancies declining to c. 90% levels by 2019E.

We expect average net demand of 17,841 units from 2015-19E to be way below the substantial net supply of 40,990 units on average

26 November 2015


Figure 24: Output from our residential demand-supply model

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Governmentundersupplied

the market


Scenario analysis

We have conducted a scenario analysis to examine the impact of population growth and resident household sizes on our model, given that supply additions are unlikely to differ materially, as these are based on the actual committed pipeline of projects on both the private and public front.

However, we highlight that even in our best-case scenario where the population is projected to reach 6.9 mn by 2030 and average household sizes decline by 0.03 p.a., occupancies are only expected to start improving in 2019E.

Figure 25: Pictorial representation of our scenario analysis

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Household size maintained at 3.43, total population of 6.5m by 2030Household size maintained at 3.43, total population of 6.7m by 2030Base case: household size declines by 0.01 p.a., total population of 6.7m by 2030Household size declines by 0.03 p.a., total population of 6.7m by 2030Household size declines by 0.03 p.a., total population of 6.9m by 2030


26 November 2015


Figure 26: Scenario analysis and potential impact on the system’s occupancy Total ('000) YoY change ('000) Average

household size

Net demand

Net supply

Net DD'-net SS'

Occupancy (%) Population Residents Foreigners Population Residents Foreigners

Average household size maintained at 3.43 p.a., total population of 6.5 mn, resident population of 4.2 mn by 2030 2014 5,470 3,871 1,599 71 26 45 3.43 28,130 51,101 -22,971 96.5 2015E 5,535 3,903 1,632 65 32 33 3.43 17,879 48,160 -30,281 94.5 2016E 5,595 3,922 1,670 60 19 38 3.43 10,575 52,149 -41,574 91.9 2017E 5,655 3,941 1,709 60 19 39 3.43 10,963 42,664 -31,701 90.1 2018E 5,716 3,960 1,748 61 19 40 3.43 11,114 33,456 -22,342 88.9 2019E 5,777 3,980 1,789 62 19 40 3.43 11,268 28,522 -17,254 88.0 Average household size maintained at 3.43 p.a., total population of 6.7 mn, resident population of 4.3 mn by 2030 2014 5,470 3,871 1,599 71 26 45 3.43 28,130 51,101 -22,971 96.5 2015E 5,535 3,903 1,632 65 32 33 3.43 17,879 48,160 -30,281 94.5 2016E 5,606 3,928 1,675 71 25 42 3.43 13,027 52,149 -39,122 92.1 2017E 5,678 3,953 1,718 72 25 44 3.43 13,468 42,664 -29,196 90.4 2018E 5,751 3,979 1,763 73 26 45 3.43 13,674 33,456 -19,782 89.3 2019E 5,824 4,005 1,809 74 26 46 3.43 13,884 28,522 -14,638 88.6 Base case: Average household size declines by 0.01 p.a., total population of 6.7 mn, resident population of 4.3 mn by 2030 2014 5,470 3,871 1,599 71 26 45 3.43 28,130 51,101 -22,971 96.5 2015E 5,535 3,903 1,632 65 32 33 3.42 21,205 48,160 -26,955 94.7 2016E 5,606 3,928 1,675 71 25 42 3.41 16,417 52,149 -35,732 92.5 2017E 5,678 3,953 1,718 72 25 44 3.40 16,922 42,664 -25,742 91.1 2018E 5,751 3,979 1,763 73 26 45 3.39 17,192 33,456 -16,264 90.2 2019E 5,824 4,005 1,809 74 26 46 3.38 17,468 28,522 -11,054 89.7 Average household size declines by 0.03 p.a., total population of 6.7 mn, resident population of 4.3 mn by 2030 2014 5,470 3,871 1,599 71 26 45 3.43 28,130 51,101 -22,971 96.5 2015E 5,535 3,903 1,632 65 32 33 3.40 27,918 48,160 -20,242 95.2 2016E 5,606 3,928 1,675 71 25 42 3.37 23,377 52,149 -28,772 93.4 2017E 5,678 3,953 1,718 72 25 44 3.34 24,138 42,664 -18,526 92.4 2018E 5,751 3,979 1,763 73 26 45 3.31 24,673 33,456 -8,783 92.0 2019E 5,824 4,005 1,809 74 26 46 3.28 25,223 28,522 -3,299 92.0 Average household size declines by 0.03 p.a., total population of 6.9 mn, resident population of 4.4 mn by 2030 2014 5,470 3,871 1,599 71 26 45 3.43 28,130 51,101 -22,971 96.5 2015E 5,535 3,903 1,632 65 32 33 3.40 27,918 48,160 -20,242 95.2 2016E 5,617 3,934 1,679 82 31 47 3.37 25,797 52,149 -26,352 93.6 2017E 5,700 3,966 1,728 83 32 48 3.34 26,651 42,664 -16,013 92.7 2018E 5,784 3,997 1,778 84 32 50 3.31 27,283 33,456 -6,173 92.5 2019E 5,870 4,030 1,829 86 32 51 3.28 27,932 28,522 -590 92.6 Source: URA, HDB, Singstat, Credit Suisse estimates

Little leeway in supply

We have observed that estimates of annual new private residential units completed have been cut historically, with the net effect of new supply being "pushed out", partially mitigating the full impact of the oversupply situation. However, we believe that given the significant pipeline of units expected to come on stream since 2014, a lengthening of the development cycle would be unlikely to leave much room for further moderation of supply, especially against the context of a five-year period for completion and sale of units for GLS sites.

A lengthening of the development cycle would be unlikely to leave much room for further moderation of supply

26 November 2015


Figure 27: Estimates of new private residential supply have been cut—supply being pushed out

Figure 28: Significant pipeline of private residential supply persists

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22,351

Source: URA, Credit Suisse research Source: URA, Credit Suisse research

Downward pressure on rents, capital values

Historically, we observe that private residential rentals correlate well with system occupancy. We think this makes sense, given the large stock of 1.1 mn HDB units vs 0.3 mn private residential units, and that within certain limits, non-residents are permitted to rent HDB units as well.

Consequently, we expect the declines in system occupancies to exert further downward pressure on private residential rents. Assuming the government maintains the status quo, we expect prices to continue on its path of decline which started in 2013, given the current demand-supply dynamics.

Figure 29: Private residential rents vs system occupancy Figure 30: Private and HDB prices vs system occupancy

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Private residential vacancies to trend up, led by non-landed vacancies

Similarly on the private residential front, we expect vacancies to continue on their upward trend, which started in 2010, and do not rule out a further acceleration in vacancies given the record net supply. The non-landed residential segment is expected to take the brunt of the oversupply, given that the private landed market has typically been driven by local demand and supply (PRs and foreigners restricted from ownership) and is typically owner-occupied.

We expect the declines in occupancies to exert further downward pressure on private residential rents

26 November 2015


Figure 31: Private residential demand, supply and vacancy Figure 32: Landed vs non-landed vacancies

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Expect prices to decline by 5-10% in 2016E Figure 33: YoY change in private residential prices Figure 34: Private residential price index—by region

(%) 2010 2011 2012 2013 2014 2015E 2016E

Overall 17.6 5.9 2.8 1.1 -4.0 -5.0 -7.5

High-end (CCR) 14.2 4.0 0.8 -1.9 -4.1 -3.5 -5.0

Mid-market (RCR) 17.6 4.5 1.6 -0.1 -5.3 -5.5 -7.5

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Much has been said about the decline in private residential prices, which has most recently seen an eighth consecutive quarter of decline in 3Q15. While the overall declines thus far have been moderate, with overall prices down 8% from their peak in 3Q13, we expect the pace of decline to accelerate, and overall price declines of 5-10% in 2016E given that the bulk of new supply additions are expected in 2016.

Overall unsold inventory at 24,149 units as at 3Q15 remains manageable and has been on a decline as a result of lower planned supply, although we note that the percentage of units under construction and still unsold has crept up to 33%. Based on the trailing four quarter primary home sales volumes, existing unsold inventory will require 3.4 years to clear, as a result of weak primary volumes of c. 7,000 units over the past four quarters.

What we believe is noteworthy is that close to 3,000 units in projects from the GLS programme in 2012 remains unsold. We expect further price cuts for these affected projects, as developers would be under pressure to completely sell all units by 2017. Recall that developers were granted a remission of ABSD despite the implementation of ABSD for developers of 10% from Dec 2011 and 15% from January 2013, on the condition that all units are completed and sold within five years, or ABSD will be charged on the land price compounded at 5% p.a.

We expect overall price declines of 5-10% in 2016E

Units in projects from the GLS programme in 2012 could see further price cuts, given the timeline to complete sales by 2017

26 November 2015


Figure 35: New units sold vs years required to clear unsold inventory

Figure 36: Unsold inventory manageable, although % under construction still unsold creeping up

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High-end most preferred, mass-market least preferred

We have a relative preference for the high-end CCR segment, and believe that mass market (OCR) prices are subject to the greatest downside risks. We estimate CCR prices will decline by 5% in 2016E, vs 10% for OCR.

Premium of median prices in CCR have narrowed to 64%, below historical averages of about 80%, and are relatively more attractive at present. Similarly, premium of RCR vs OCR has also narrowed to 18%, below its historical average of about 24%.

Figure 37: Premium of prices in CCR vs OCR has narrowed to below historical averages

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With the incoming supply largely from the OCR region, we believe mass market prices face the greatest risk of demand-supply imbalances. The rising number of uncompleted EC units unsold at c. 3,500 units as at 3Q15 is also fundamentally negative to mass market projects, given the competition for a similar pool of buyers. This is especially with the recent lifting of income ceilings for EC purchases from S$12,000 a month to S$14,000 a month, with the National Development minister recently highlighting that 1 in 3 EC buyers have benefited from the higher income ceiling.

Relative preference for the high-end CCR segment; mass market prices subject to the greatest downside risks

26 November 2015


A case in point is the launch of High Park Residences by CEL Development in July 2015, located within the OCR region of Sengkang. While the project has a large supply of 1,390 units available, close to 1,100 units were sold on the first weekend of sales, with the project 90% sold as of today. We think the attractive prices offered of <S$1,000 psf likely culminated in the sales response, with other developers likely to take a leaf out of CEL's book in a bid to move units.

Figure 38: Incoming supply largely from the OCR region Figure 39: Uncompleted EC units with pre-requisites for sale and are launched but unsold

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But prices unlikely to fall off a cliff While we have a bearish view on prices, we believe that prices are unlikely to witness a drastic correction as we have seen in past property cycles. A common thread in the past three cycles which have witnessed price declines of 20-45% is that all three episodes coincided with a broader macroeconomic crisis. The price declines that we have seen since 2013 are thus to a certain extent "engineered" by the government, in order to achieve its target of a soft landing in the residential market. As a result, we expect prices to continue their decline in an "orderly fashion", given the measured price cuts by developers and the low likelihood of distressed sales in the secondary market.

Figure 40: Comparison of prices and rentals across property cycles 1996-98 (AFC) 2000-04 (Dot-

com bubble) 2008-09 (GFC) 2013-Present

URA Residential Price Index - Peak 129.7 (2Q96) 100.4 (2Q00) 126.9 (2Q08) 154.6 (3Q13) - Trough 71.5 (4Q98) 80.3 (1Q04) 95.3 (2Q09) 142.3 (3Q15)* - Peak to trough -44.9% -20.0% -24.9% -8.0%* - No. of quarters of decline 10 15 4 8* HDB Resale Price Index - Peak 99.0 (4Q96) 80.3 (1Q00) 100.8 (4Q08) 149.4 (2Q13) - Trough 71.2 (1Q99) 69.1 (1Q02) 100.0 (1Q09) 134.6 (3Q15)* - Peak to trough (%) -28.0% -13.9% -0.8% -9.9%* - No. of quarters of decline 9 8 1 9* URA Non-Landed Rental Index - Peak 114.6 (1Q96) 73.2 (3Q00) 116.5 (2Q08) 118.2 (3Q13) - Trough 67.9 (1Q99) 64.0 (1Q04) 92.8 (3Q09) 110.3 (3Q15)* - Peak to trough (%) -40.8% -12.6% -20.3% -6.7%* - No. of quarters of decline 12 14 5 8*

* Data as at 3Q15. Source: URA, HDB, Credit Suisse Research.

Other developers likely to take a leaf out of CEL's book to move units via attractive prices

In the absence of a broader macroeconomic crisis, we do not expect prices to crash

26 November 2015


Impact of interest rate rise negative, but not catastrophic

Credit Suisse economists currently expect SIBOR to rise to 2% by 2016E, which would have the dual effect of lowering the attractiveness of property as an investment and impacting mortgage affordability. While the residential market has benefited from positive rental carry given the record low interest rates, we expect spreads to narrow considerably in 2016E, against the prospects of weakening rentals.

Overall mortgage affordability remains manageable, in our view, and is thus unlikely to precipitate in significant distressed sales and price declines in the secondary market. Taking household incomes of the top 30% (c. 80% of resident households reside in HDB flats) against a S$0.9 mn mortgage (80% LTV on at a 2.25% mortgage rate), mortgage payments only represent 26% of total income. Assuming the use of CPF ordinary account for mortgage payments, cash payments as a percentage of disposable incomes (incomes after deductions for CPF contributions) would be even lower at 14%. A rise in SIBOR to 2% would also be manageable, as depicted in Figures 43 and 44.

Figure 41: Rental carry less attractive Figure 42: But overall mortgage affordability manageable

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years loan tenure at SIBOR+125 bp Source: URA, Singstat, Credit Suisse estimates.

Figure 43: Impact of changes in SIBOR and wage inflation on total mortgage as % of total income

Figure 44: Impact of changes in SIBOR and wage inflation on cash payments as % of disposable income

SIBOR (100 bp) + 125 bp spread 2.25% 2.75% 3.25% 3.75% 4.25%

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Source: URA, Singstat, Credit Suisse estimates Source: URA, Singstat, Credit Suisse estimates

Overall mortgage affordability remains manageable, with mortgage payments at 26% of total income

26 November 2015


Expect an easing in 2H16, but bottom-up stock drivers remain key Achieving a stable and sustainable property market has been the key objective of the government, when the eight rounds of property cooling measures were implemented in 2009. We believe that the time is ripe for an easing of some of these measures, given that the specific policy intent of these has been achieved: (1) speculative activities have fallen significantly, with monthly sub-sales now at a negligible 2-4% of total volumes, (2) foreign demand has been curbed significantly with overall foreigner buying at 4% of total volumes, and (3) housing affordability has improved substantially with incomes having risen faster than home prices on both a short-term and long-term perspective.

Against the backdrop of a rising interest rate environment, a weakening labour market and an oversupply situation that is expected to persist in the next few years, we think a pre-emptive re-calibration of measures, rather than ex-post corrective actions, would be a better way to go in achieving a stable and sustainable property market. This is especially so given a home ownership rate of 90%, with residential property representing a dominant majority at 46% of household assets; we believe that a large correction in property prices is neither desirable nor tolerated.

With the TDSR framework expected to be in place for the long term to ensure financial prudence, we think that a re-calibration of stamp duty measures (ABSD, SSD) is most probable. We think this would likely drive greater transaction volumes, and increase liquidity in the secondary market. While we do not expect prices to rebound immediately, the improvement in sentiment would be a critical outcome. In our view, a re-calibration of cooling measures would be the proverbial "silver bullet", acting as a key rerating catalyst for the developers, with CDL likely to be the biggest beneficiary given its oft-held view as a proxy to the Singapore residential market.

Regardless of whether there will be a re-calibration, however, we believe that bottom-up drivers play a far greater role for CDL and CAPL, given the greater relevance of the non-Singapore residential segment for these integrated property developers. We note that both CDL and CAPL have sufficiently diversified their business lines—for them Singapore residential only comprises 24% and 5% of our GAV estimates, respectively. Further, assuming Singapore residential prices fall a further 20% from our estimates, RNAV for CDL and CAPL will only decline 5% and 2%, respectively.

Conditions are now ready for an easing of measures Speculative activities have declined, foreign buying has eased

Using the level of sub-sales as an indication of speculative demand, we highlight that speculative activities have fallen significantly, with monthly sub-sales now at a negligible 2-4% of total market volumes. This was likely driven by the progressive introduction of seller's stamp duty (SSD), which discouraged the "flipping" of property purchases through a progressive duty charged depending on the holding period.

The government has also imposed significant ABSD rates on foreigners of 10% in December 2011 and 15% in January 2013, in a bid to curb foreign demand given the "large pool of external liquidity and strong buying interest from abroad, and the relatively small size of the Singapore market". Since then, foreigner demand has also been curbed, with overall foreigner buying at 4% of total volumes vs a high of 21% back in 4Q11.

Specific policy intent of the measures have been achieved

With a home ownership rate of 90% and residential property 46% of household assets, a large correction is neither desirable nor tolerated

A re-calibration of cooling measures would be a key rerating catalyst

Regardless, bottom-up drivers play a far greater role for CDL and CAPL

26 November 2015


Figure 45: Speculative activity has declined… Figure 46: …while foreigner buying has also fallen

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0

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11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5Sub-sales Sub-sales % of total sales - RHS

Units

12%

8%

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CCR RCR OCR Overall


Prices have fallen in line with incomes

The government has previously highlighted that property prices have increased faster than incomes, and that the gap must be closed. On both the public and private segments, we note that longer-term incomes have in general kept pace with property prices, with a large divergence observed only in recent years.

However, we note that housing affordability has improved substantially since the cooling measures were introduced, and even if we assumed that incomes remain flat from 2014 levels, the "gap" between incomes and prices has since been effectively eliminated.

The government has also taken a more targeted approach of late in helping to ensure housing affordability for the new home owners, which in our view has greater efficacy vs broad-based price declines which may have a negative impact on the 90% resident homeowners at present. Some of these measures include continued subsidies for BTO flats purchased directly from the government, CPF housing grants, and proximity housing grants.

Figure 47: Average and median household incomes vs. HDB resale prices (2000=100)

Figure 48: Average and median household incomes vs. HDB resale prices (2008=100)

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2015

Average household income Median household incomeHDB Resale price index

Source: URA, HDB, Singstat, Credit Suisse research Source: URA, HDB, Singstat, Credit Suisse research

Housing affordability has improved substantially since the cooling measures were introduced, with the government now taking a more targeted approach to ensure affordability for new home owners

26 November 2015


Figure 49: Top 20th and 30th percentile household incomes vs. private property prices (2000=100)

Figure 50: Top 20th and 30th percentile household incomes vs. private property prices (2008=100)

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Average household income of 20th percentileAverage household income of 30th percentileURA Private property price index

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140

2008

2009

2010

2011

2012

2013

2014

2015

Average household income of 20th percentileAverage household income of 30th percentileURA Private property price index

Source: URA, HDB, Singstat, Credit Suisse research Source: URA, HDB, Singstat, Credit Suisse research

Labour market and employment situation showing signs of weakness

While Singapore has averted the fate of a technical recession thus far, Credit Suisse economists currently expect GDP growth to be moderate at 1.7% in 2015E and 2.4% in 2016E, with domestic restructuring likely to continue weighing on growth. Importantly, while overall unemployment has been relatively stable at 2%, unemployment rose QoQ among residents (2.8% to 3.0%) and citizens (2.9% to 3.1%) in 3Q15, the second consecutive quarter of increase since Mar 2015. Hiring sentiment in Singapore has also been cautious, with only a net 32% of employers expecting to increase headcount.

Figure 51: Credit Suisse expects unemployment to reach 2.2% in 2015E

Figure 52: Hiring sentiment of employers cautious

CS 2015Eestimate: 2.2%

0.00

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(%)

Overall unemployment rate Resident unemployment rate

Source: Singstat, Credit Suisse estimates Net % of employers expecting to increase headcount. Source: Hudson

Employment performance in Singapore has been weak YTD, driven by weakness across manufacturing, services and construction. The increase in local employment over the past four years has thus far offset slower foreign employment growth. However, resident labour force and participation rates likely fell in the first half of the year and our economic team believes it is it harder for resident labour force participation rates to rise moving forward given its already elevated levels.

Resident and citizen unemployment for the second consecutive quarter in 3Q15, with hiring sentiment cautious

26 November 2015


A further worsening of the labour market and resident employment situation could thus pose downside risks to property prices, and act as a dampener to future property demand.

Figure 53: While 3Q saw a turn in services employment, employment growth has been weak YTD

Figure 54: Driven by a sharp drop in local employment

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no. of ppl Half-yearly changes in employment

Total Foreign EmploymentTotal Local Employment

Source: Singstat, Credit Suisse estimates Source: Singstat, Credit Suisse estimates

No longer in a low interest rate environment

Low interest rates and the risk of excessive capital inflows into the property market have been two of the key concerns of the government, during the introduction of the series of property measures. However, we note that SIBOR in Singapore has risen considerably to c. 1% this year, from less than 0.5% levels since 2010, with Credit Suisse economists further expecting SIBOR to reach 2% by 2016E. Foreign demand has also significantly diminished as highlighted in Figure 46.

With the prospects of a rate hike by the Fed and the end of an era of quantitative easing in the US, we think the risk of excessive liquidity in the local property market has diminished considerably, with weak rental yields an additional dampener to investment demand.

Property represents a significant share of household wealth

At a home ownership rate of 90% among the resident population, we believe that a large correction in property prices is neither desirable nor tolerated. This is especially so given that residential property represents a dominant majority at 46% of household assets, and a crash in prices would be a significant detriment to household wealth, with negative spill-over implications on the wider economy.

Figure 55: Resident household asset composition (as of Jun 2015)

Residential Property Assets46%

Currency & Deposits20%

Central Provident Fund (CPF) 16%

Shares & Securities

9%

Life Insurance

8%

Pension Funds1%

Source: Singstat, Credit Suisse research

With a home ownership rate of 90% and residential property 46% of household assets, a large correction is neither desirable nor tolerated

26 N

ovember 2015


Figure 56: Summary of property measures implemented by the government so far

* Overseas properties excluded from count of properties owned. Source: URA, HDB, MAS, Credit Suisse research

26 November 2015


What measures could be adjusted? Demand-supply adjustments have already been introduced

On the supply side, the government has been reducing the amount of units made available in the GLS programme, with only four confirmed list sites and 10 reserve list sites for the residential market, yielding up to 7,825 private residential units (including ECs) in the latest 2H15 GLS programme. Indirectly, housing demand from foreigners has also been curbed, as a by-product of the moderation in foreign population growth.

Going forward, we expect a further moderation of supply given the large pipeline of private residential units completing in the next few years, with a potential removal of the confirmed list.

Unlikely to involve an easing of credit to property

The MAS has previously announced that the TDSR framework is structural in nature, and will be in place for the long term. We believe that the stringent TDSR requirements would mean that loan tenure restrictions and LTV limits are to a certain extent redundant, as the TDSR would already ensure that credit underwriting standards are upheld and household borrowings kept in check. However, given the prospects of rising interest rates, we think that the easing of credit and relaxation of LTV measures are unlikely in the near term, as a signalling mechanism to instil prudence in borrowers; especially against a broader backdrop of economic restructuring in Singapore.

Re-calibration of stamp duty measures (ABSD, SSD) most probable

We believe that a re-calibration of ABSD and SSD could occur in 2H16, just as how they were introduced in a step-fashion since Feb 2010.

With tighter lending restrictions and the governing framework of the TDSR keeping a check on affordability, coupled with higher interest rates and an oversupply situation weighing on prices over the next few years, we think that a re-calibration exercise will not only be tolerable, but instead move the property market towards the government's target of a stable and sustainable market, vis-à-vis a continuous decline in prices.

A moderation of ABSD rates could be on the cards for Singaporeans buying their second property, Permanent Residents and foreigners; similar to the rates seen when the first round of ABSD was introduced. The MAS has previously issued warnings about overseas property purchases by Singaporeans, and tweaks in ABSD for Singaporeans could in turn reduce the level of overseas property investments and lower the systemic risks faced by Singaporean households. Foreigner purchases of property have also slowed to 4% of total volumes in 3Q15, below long-term averages.

With speculative activity in check, tenures and rates for SSD could also be moderated. We think this could have the added benefit of allowing households to liquidate their housing investments without significant losses, in the event of the risk of a liquidity crunch, should the employment situation continue to worsen.

A re-calibration of ABSD and SSD could occur in 2H16, just as how they were introduced in a step-fashion since Feb 2010

26 November 2015


Figure 57: Summary of key property cooling measure by type Measure Date Summary of impact Objective Loan-to-Value (LTV) ratio - LTV 1 19-Feb-10 LTV lowered to 80% (from 90%) Signal to the financial institutions to maintain

credit standards, and encourages greater financial prudence among property purchasers

- LTV 2 30-Aug-10 LTV lowered to 70% (from 80%) for 2nd housing loan onwards To encourage greater financial prudence among property purchasers

- LTV 3 13-Jan-11 LTV lowered to 60% (from 70%) for 2nd housing loan onwards LTV lowered to 50% (from 70%) for non-individuals

To encourage greater financial prudence among property purchasers

- LTV 4 6-Oct-12 If loan tenure exceeds 30 years: LTV lowered to 60% (from 80%) LTV lowered to 40% (from 60%) for 2nd housing loan onwards LTV lowered to 40% (from 50%) for non-individuals

Part of broader aim of avoiding a price bubble and fostering long-term stability in the property market

- LTV 5 11-Jan-13 LTV lowered to 50% (from 60%) for 2nd housing loan, 40% (from 60%) for 3rd housing loan onwards If loan tenure exceeds 30 years: LTV lowered to 30% (from 40%) for 2nd housing loan and 20% (from 40%) for 3rd housing loan onwards LTV lowered to 20% (from 40%) for non-individuals

To discourage over-borrowing, financing conditions for housing have also been tightened

Sellers' Stamp Duty (SSD) - SSD 1 19-Feb-10 SSD of 3% (from 0%) To discourage short-term speculative activity

that could distort underlying prices - SSD 2 30-Aug-10 SSD staggered at 3% for 1st year, 2% for 2nd year, 1% for 3rd year To temper sentiment - SSD 3 13-Jan-11 SSD raised to 16% (from 3%) for 1st year,12% (from 1%) for 2nd

year, 8% (from 1%) for 3rd year, 4% (from 0%) for 4th year To cool the property market and discourage speculative activity in the industrial market

Additional Buyer's Stamp Duty (ABSD) - ABSD 1 7-Dec-11 Foreigners and non-individuals: 10% (from 0%) on top of existing

PRs: 3% (from 0%) for 2nd property onwards Singaporeans: 3% (from 0%) for 3rd property onwards

To moderate investment demand for private residential property and promote a more stable and sustainable market

- ABSD 2 11-Jan-13 Foreigners and non-individuals: 15% (from 10%) on top of existing PRs: 5% for 1st property, 10% (from 3%) for 2nd property onwards Singaporeans: 7% (from 0%) for 2nd property, 10% (from 3%) for 3rd and subsequent property

To be tighter on property ownership for investment, as well as on foreign buyers

Total Debt Servicing Ratio (TDSR) - TDSR 28-Jun-13 A max limit of 60% of total gross monthly income can be used to

service loans and mortgages To encourage prudent borrowing by households and strengthen credit underwriting standards by financial institutions

Source: URA, MAS, Credit Suisse research

Impact likely to be volume-driven The impact of a re-calibration of cooling measures would likely drive greater transaction volumes, and increase liquidity in the secondary market. However, we do not expect residential prices to pick up immediately, especially against the near-term demand-supply imbalance.

Rather, we think the tweaking of measures effectively results in lower transaction costs, and could even potentially accelerate the price discovery process near term, through the higher level of transaction volumes in the market. Sentiment, however, is likely to improve, which we believe is critical in finding a floor to the market, and puts to rest speculation on the length of the property down-cycle and concerns over government inaction. All in all, we think a pre-emptive re-calibration of measures rather than ex-post corrective actions would be a better way to go in achieving a stable and sustainable property market.

Sentiment is likely to improve, which we believe is critical in finding a floor to the market, and puts to rest speculation on the length of the property downcycle and concerns over government inaction

26 November 2015


Figure 58: Secondary transactions have troughed, and volumes could recover if market sentiment improves

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Units SSD2 SSD3 ABSD1 ABSD2SSD1

Source: URA, Credit Suisse research

Moderate pick-up in foreign demand likely

We think the ABSD measures have curbed not only investment demand from foreigners, but also genuine demand from foreigners residing in or with a presence in Singapore. Assuming that measures targeting foreigners are adjusted, we expect a modest pick-up in suppressed foreigner demand, with demand likely moderating by rising interest rates, tighter access to liquidity and the depreciation of regional currencies such as the IDR, INR and MYR (three of the largest source markets for foreigner demand).

Anecdotally, we think that recent volatility in the equity markets has also improved the long-term attractiveness of property as an asset class for foreigners residing in Singapore, especially against a stable SGD and a strong regulatory regime in place to prevent the formation of asset bubbles.

Figure 59: Number of units bought by foreigners Figure 60: Percentage of foreign buying by segment

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26 November 2015


Figure 61: Currency performance of top four source markets of foreign demand (Jan 10=100)

Figure 62: URA residential price index vs. regional equity indices (Jan 10=100)

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Source: Bloomberg, Credit Suisse research Source: URA, Bloomberg, Credit Suisse research

Impact on developers under our coverage overplayed: Bottom-up drivers remain key While the long-term outlook for the Singapore residential market appears hazy, we believe that concerns about the Singapore residential market in our coverage are overplayed. We note that both CDL and CAPL have sufficiently diversified their business lines, such that Singapore residential only comprises 24% and 5% of our GAV estimates for CDL and CAPL, respectively.

Regardless, we have built in conservative ASP assumptions in our estimates for CDL and CAPL, but assuming Singapore residential prices fall a further 20% from our estimates, RNAV for CDL and CAPL will only decline by 5% and 2%, respectively. We think the risk-reward for CDL is also attractive, with valuations close to 2008/09 lows and CDL trading at a 41% discount to RNAV.

In our view, a re-calibration of cooling measures would be a key re-rating catalyst for the developers, with CDL likely to be the biggest beneficiary given its oft-held view as a proxy to the Singapore residential market. Regardless of whether there will be a re-calibration, we believe that bottom-up drivers play a far greater role for CDL and CAPL, given the greater relevance of the non-Singapore residential segment for these integrated property developers.

We believe that concerns over the Singapore residential market on our coverage are overplayed; Singapore residential only comprises 24% and 5% of our GAV estimates for CDL and CAPL respectively

26 November 2015


Figure 63: CDL premium/(discount) to RNAV Figure 64: CapitaLand premium/(discount) to RNAV

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Source: Thomson Reuters, Credit Suisse estimates Source: Thomson Reuters, Credit Suisse estimates

Figure 65: Developers valuation summary Ticker Up/ Mkt Cap RNAV Disc to ROE (%) P/B Net Debt/ 6M ADTDevelopers Rating LC TP Dn (%) (S$ mn) (S$) RNAV (% T+1 T+2 T+3 T+1 T+2 T+1 (x) Equity (%) (S$mn)CAPL SP Capitaland N 3.13 3.50 12 13,379 4.21 26 18.4 14.5 12.7 2.9 2.9 4.2 0.76 51 39.8CIT SP City Dev elopments O 7.52 12.00 60 6,838 12.85 41 13.5 9.7 9.2 1.7 1.7 5.8 0.79 30 14.2FCL SP Frasers Centrepoint Ltd NR 1.65 n.a. n.a. 4,777 n.a. n.a. 8.4 7.9 8.0 4.4 4.4 8.3 0.73 84 0.4UOL SP UOL Group NR 6.16 n.a. n.a. 4,905 n.a. n.a. 11.5 11.1 10.7 2.5 2.5 5.4 0.63 31 7.8OUE SP Ov erseas Union Ent. NR 1.79 n.a. n.a. 1,757 n.a. n.a. 20.1 19.2 29.8 3.2 1.8 2.0 0.41 44 0.9GUOL SP Guocoland NR 1.85 n.a. n.a. 2,189 n.a. n.a. 20.1 14.6 9.6 3.5 3.1 3.1 0.61 60 0.4HOBEE SP Ho Bee Inv estment NR 2.01 n.a. n.a. 1,414 n.a. n.a. 19.5 17.2 11.8 2.7 2.7 2.6 0.51 50 0.3WINGT SP Wing Tai Asia NR 1.72 n.a. n.a. 1,362 n.a. n.a. 17.5 15.2 18.1 2.6 2.6 2.9 0.41 10 1.6Average 16.1 13.7 13.7 2.9 2.7 4.3 0.61 45

Price (S$) P/E (x) Yield (%)

Priced as at 24 November 2015. Note: O = Outperform, N = Neutral, U = Underperform, NR = Not Rated. Source: Company data, IBES, Credit Suisse estimates.

City Developments (OUTPERFORM, TP S$12.00)

We believe CDL is best positioned for a turnaround in the Singapore residential market sentiment in 2016. As seen in Figures 66 and 67, we think that volumes are a more important driver of share price rather than prices per se; a re-calibration in cooling measures could thus improve sentiment and drive greater residential volumes, hence acting as a key rerating catalyst for the stock.

In addition, we believe CDL has an underappreciated portfolio of investment properties, the value of which could be potentially unlocked in the near term, through asset divestments and capital recycling initiatives. As at Sep-2015, CDL's investment properties are held at S$3.1 bn vs our estimated value of S$7.6 bn, while we estimate its Singapore office assets to be worth S$3.9 bn. We think capital recycling initiatives would be a key near-term catalyst, allowing CDL to: (1) realise a healthy gain on divestment, (2) crystallise value on its balance sheet through a narrowing of the discount to RNAV, and (3) recycle cash proceeds for future investments.

CDL best positioned for a turnaround in sentiment, with corporate action to unlock value a key near-term catalyst

26 November 2015


Figure 66: CDL share price vs property price index Figure 67: CDL share price vs secondary volumes

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Source: URA, Thomson Reuters, Credit Suisse research Source: URA, Thomson Reuters, Credit Suisse estimates

Within the Singapore residential market, we have a relative preference for the high-end (CCR) segment, and in the case of CDL, a majority of future project launches are located in the CCR, notably Gramercy Park, New Futura, Nouvel 18 and South Beach Residences.

Figure 68: CDL GAV estimates by segment Figure 69: Singapore residential exposure by asset value

Singapore Office29%


24%

Hospitality20%


11%

Singapore Retail9%

Others7%

CCR, $2,792mn (74%)

RCR, $441mn (12%)

OCR, $171mn (4%) EC, $368mn

(10%)

Note: For 2015E. Source: Company data, Credit Suisse estimates Note: For 2015E. Source: Company data, Credit Suisse estimates

26 November 2015


Figure 70: CDL current projects and future launches Project Region Total units Units sold as

of 30-09-15 % of total units

sold Expected

Completion Bartley Ridge RCR 868 862 99% 2016 Coco Palms OCR 944 822 87% 2Q2019 Commonwealth Towers RCR 845 389 46% 2017 D'Nest OCR 912 869 95% 4Q2017 Echelon RCR 508 505 99% 4Q2016 Jewel @ Buangkok OCR 580 552 90% 4Q2016 The Brownstone (EC) EC 600 289 45% 2019 The Venue Residences RCR 266 98 37% 3Q2017 UP @ Robertson Quay CCR 70 55 79% 1Q2016 The Criterion (EC) EC 490 45 - 2018 Future launches: Gramercy Park CCR 174 - - 4Q2016 New Futura CCR 150 - - 2016 Nouvel 18 CCR 156 4Q2014 South Beach Residences CCR 190 - - 2016

Source: Company data, Credit Suisse estimates

CapitaLand (NEUTRAL, TP S$3.50)

We believe that CAPL’s limited residential exposure at 20% of our GAV estimate (S$1.72 per share) mitigates concerns about the slowdown in the residential markets in Singapore and China. Singapore residential only accounts for 5% of our GAV estimate, and 7% of reported total assets of the group.

Further, CAPL currently has a sufficiently diversified earnings stream, with 75% of total assets contributing to recurring income, and 65% of operating EBIT derived from investment properties. Going forward, we believe the key driver for CAPL will be management's ability to deliver on earnings growth and achieve its 8-12% medium-term ROE targets.

To this end, we expect CAPL to grow core earnings from S$705 mn in 2014 to S$1,047 mn in 2017E, underpinned by the fruition of its prior investments in its office, Raffles City and shopping mall projects. Execution over the next few years will be critical, however, and we think near-term upside is limited, given the uncertainty around near-term earnings (only +3% core earnings growth in 2015E), the achievement of management ROE targets and execution risk on the sizeable S$6.9 bn (100% basis) pipeline of projects due for completion.

While CAPL's valuations are undemanding, we believe upside is limited, given the uncertainty around near-term earnings and achievement of an ROE target of 8-12%, and execution risks

26 November 2015


Figure 71: CAPL GAV estimate by segment Figure 72: Singapore assets—S$17.4 bn (37% of CAPL's total assets)

CL China27%

CL Singapore12%

CMA41%

Ascott9%

Management fee5%


~5% residential

Residential & Office Strata

20%

Commercial & Integrated

development45%

Shopping Malls28%

Serviced Residences

6%

Others1%

Singapore assets

S$17.4 bn

Note: For 2015E. Source: Company data, Credit Suisse estimates Source: Company data as at 30 September 2015

CAPL's existing list of projects launched has also been 85% sold (Figure 73), which mitigates any further downside risks in ASPs. Moreover, CAPL does not have significant land bank on its balance sheet, with only three future launches expected, all of which are in the CCR region.

Figure 73: Launched projects substantially sold Project Region Total units Units sold as

of 30-09-15 % of total units sold

% completed as at 30-09-15

The Orchard Residences CCR 175 168 96% 100% Urban Resort Condominium CCR 64 62 97% 100% The Interlace RCR 1,040 900 87% 100% d'Leedon CCR 1,715 1,525 89% 100% Bedok Residences OCR 583 571 98% 100% Sky Habitat RCR 509 377 74% 100% Sky Vue RCR 694 512 74% 71% Marine Blue RCR 124 31 25% 52% Future launches: The Nassim CCR 55 - - 100% Site at Cairnhill Place CCR 268 - - - Victoria Park Villas (Coronation Rd) CCR 109 - - *7%

Note: The Nassim achieved TOP on 24 Aug 2015.* As at Dec 2014. Source: Company data

26 November 2015


Asia Pacific / Singapore Real Estate Management & Development

City Developments (CTDM.SI / CIT SP)

ASSUMING COVERAGE

Top pick: Multiple catalysts ahead ■ Assuming coverage with OUTPERFORM (TP S$12.00). We believe that

multiple catalysts lie ahead for CDL, with further upside likely to be driven by: (1) asset divestments to unlock portfolio value, (2) positive sales momentum from past overseas investments, (3) a pick-up in Singapore residential sentiment in 2016, with the potential tweaking of residential policy measures, and (4) a potential re-inclusion into the FTSE EPRA/NAREIT index.

■ Unlocking value through capital recycling. We believe CDL has an underappreciated portfolio of investment properties, the value of which could be potentially unlocked near term through an asset divestment, while retaining long-term ownership. As at Sep-2015, CDL's investment properties are held at S$3.1 bn vs our estimated value of S$7.6 bn. We estimate its Singapore office portfolio to be worth S$3.9 bn, with potential assets likely to include stabilised assets such as Republic Plaza (S$1.8 bn), Fuji Xerox Towers (S$600 mn) and Manulife Centre (S$360 mn). We view this as a key catalyst for CDL, given it allows the company to: (1) realise a healthy gain on divestment, (2) crystallise value on its balance sheet through a narrowing of the discount to RNAV, and (3) recycle cash proceeds for future investments.

■ Geographical diversification on track, await pick-up in SG residential. CDL has been accelerating its overseas expansion, with S$1.3 bn of overseas assets acquired in 2014. While overseas revenue (ex-M&C) was only 5% of group revenues in 2014, positive sales momentum from its overseas launches could validate CDL's diversification efforts. With market transaction volumes at a trough, CDL will be best positioned for a potential turnaround in sentiment in 2016, given its status as a Singapore residential proxy.

■ Our top pick amongst the developers. We think current SG residential concerns on CDL are overdone; assuming residential ASPs fall a further 20% from our estimates, our RNAV only falls by 5%. In addition, we estimate non-residential segments contribute a sizeable 59% of PBT in FY15E. We believe current valuations are attractive, at a 41% discount to RNAV (-1.4 SD from average) and 0.79x P/B. An initiation of buybacks under its current 10% buyback mandate will also be supportive of valuations.

Share price performance

8090100110120

6

8

10

12

Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 2923.49 on 24/11/15 On 24/11/15 the spot exchange rate was S$1.41/US$1

Performance over 1M 3M 12M Absolute (%) -10.5 -14.1 -23.6 Relative (%) -5.8 -15.8 -11.1

Financial and valuation metrics

Year 12/14A 12/15E 12/16E 12/17E Revenue (S$ mn) 3,763.9 3,345.0 4,137.6 3,760.2 EBITDA (S$ mn) 1,225.6 984.5 1,158.3 1,126.1 EBIT (S$ mn) 1,025.6 762.0 932.3 896.8 Net attributable profit (S$ mn) 453.6 506.5 704.9 742.0 EPS (CS adj.) (S$) 0.50 0.56 0.78 0.82 Change from previous EPS (%) n.a. -18.4 9.6 7.6 Consensus EPS (S$) n.a. 0.66 0.71 0.73 EPS growth (%) -4.5 11.7 39.2 5.3 P/E (x) 15.1 13.5 9.7 9.2 Dividend yield (%) 2.1 2.1 2.1 2.1 EV/EBITDA (x) 7.9 9.6 8.0 7.9 ROE (%) 5.6 5.9 7.8 7.7 Net debt/equity (%) 26.0 23.4 19.8 16.5 NAV per share (S$) — 12.9 — — Disc./(prem.) to NAV (%) — 41.5 — —

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* Price (24 Nov 15, S$) 7.52 Target price (S$) (from 12.25) 12.00¹ Upside/downside (%) 59.6 Mkt cap (S$ mn) 6,838 (US$4,850 mn) Enterprise value (S$ mn) 9,478 Number of shares (mn) 909.30 Free float (%) 51.6 52-week price range 10.79-7.45 ADTO - 6M (US$ mn) 10.1

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analysts Louis Chua

65 6212 5721 [email protected]

Daniel Lim 65 6212 3011

[email protected]

Nicholas Teh 65 6212 3026

[email protected]

26 November 2015


City Developments CTDM.SI / CIT SP Price (24 Nov 15): S$7.52, Rating: OUTPERFORM, Target price: S$12.00, Analyst: Louis Chua Target price scenario Scenario TP %Up/Dwn Assumptions Upside 15.17 101.70 18% premium to RNAV of $12.85 Central Case 12.00 59.57 7% discount to RNAV of $12.85 Downside 6.43 (14.54) 50% discount to RNAV of $12.85

Key earnings drivers 12/14A 12/15E 12/16E 12/17E PBT - property devt (S$ mn) 531.6 320.7 538.1 566.7 PBT - rental properties (S$ mn) 145.9 150.5 171.4 175.2 PBT - hotel operations (S$ mn) 332.8 297.4 286.7 310.7 PBT – others (S$ mn) (6.60) — — —

Income statement (S$ mn) 12/14A 12/15E 12/16E 12/17E Sales revenue 3,764 3,345 4,138 3,760 Cost of goods sold — — — — SG&A — — — — Other operating exp./(inc.) 2,484 2,277 2,846 2,412 EBITDA 1,226 985 1,158 1,126 Depreciation & amortisation 200.0 222.5 226.0 229.3 EBIT 1,026 762 932 897 Net interest expense/(inc.) 112.4 127.3 116.6 116.6 Non-operating inc./(exp.) — — — — Associates/JV — — — — Recurring PBT 913.2 634.7 815.7 780.1 Exceptionals/extraordinaries — — — — Taxes 95.1 115.3 149.4 157.9 Profit after tax 818.1 519.5 666.2 622.2 Other after tax income — — — — Revaluations — — — — Minority interests 139.0 133.8 129.0 139.8 Preferred dividends — — — — Reported net profit 679.1 385.6 537.2 482.4 Analyst adjustments (225.6) 120.9 167.7 259.6 Net profit (Credit Suisse) 453.6 506.5 704.9 742.0 Cash flow (S$ mn) 12/14A 12/15E 12/16E 12/17E EBIT 1,026 762 932 897 Net interest (126.7) (127.3) (116.6) (116.6) Tax paid (19.7) — — — Working capital (481.8) (184.8) (228.8) (186.3) Other cash & non-cash items (239.6) 107.2 76.5 71.4 Operating cash flow 157.9 557.1 663.4 665.3 Capex (936.2) (300.0) (300.0) (300.0) Free cash flow to the firm (778.3) 257.1 363.4 365.3 Acquisitions (246.7) — — — Divestments 1,075 — — — Associate investments — — — — Other investment/(outflows) — — — — Investing cash flow (41.8) (249.8) (252.9) (249.3) Equity raised — — — — Dividends paid (274.8) (145.5) (145.5) (145.5) Net borrowings 1,383 (560) — — Other financing cash flow (243.1) — — — Financing cash flow 865.4 (705.5) (145.5) (145.5) Total cash flow 981.5 (398.2) 265.1 270.5 Adjustments 17.3 — — — Net change in cash 998.8 (398.2) 265.1 270.5 Balance sheet (S$ mn) 12/14A 12/15E 12/16E 12/17E Cash & cash equivalents 3,898 3,499 3,764 4,035 Current receivables 1,589 1,412 1,746 1,587 Inventories 11.2 9.9 12.3 11.2 Properties under development 4,793 4,993 5,193 5,393 Other current assets 39.1 39.1 39.1 39.1 Current assets 10,329 9,953 10,755 11,065 Property, plant & equip. 4,918 4,996 5,070 5,140 Properties under development — — — — Investment properties 3,109 3,109 3,109 3,109 Investment in Associates/JV 1,128 1,212 1,345 1,567 Intangibles — — — — Other non-current assets 3,324 3,324 3,324 3,324 Total assets 19,701 19,485 20,495 21,097 Accounts payable 1,463 1,300 1,608 1,462 Short-term debt 2,233 2,046 2,046 2,046 Current provisions 254.4 254.4 254.4 254.4 Other current liabilities 6.9 6.9 6.9 6.9 Current liabilities 3,957 3,608 3,916 3,769 Long-term debt 4,466 4,093 4,093 4,093 Non-current provisions 364.9 364.9 364.9 364.9 Other non-current liab. 136.5 136.5 136.5 136.5 Total liabilities 8,925 8,202 8,510 8,363 Shareholders' equity 8,410 8,784 9,356 9,966 Minority interests 2,365 2,499 2,628 2,768 Total liabilities & equity 19,701 19,485 20,495 21,097

Per share data 12/14A 12/15E 12/16E 12/17E Shares (wtd avg.) (mn) 909.3 909.3 909.3 909.3 EPS (Credit Suisse) (S$) 0.50 0.56 0.78 0.82 DPS (S$) 0.16 0.16 0.16 0.16 BVPS (S$) 9.2 9.7 10.3 11.0 NAV per share (S$) — 12.9 — — `Key ratios and valuation

12/14A 12/15E 12/16E 12/17E

Growth(%) Sales revenue 19.0 (11.1) 23.7 (9.1) EBIT 9.5 (25.7) 22.3 (3.8) Net profit (4.5) 11.7 39.2 5.3 EPS (4.5) 11.7 39.2 5.3 Margins (%) EBITDA 32.6 29.4 28.0 29.9 EBIT 27.2 22.8 22.5 23.8 Pre-tax profit 24.3 19.0 19.7 20.7 Net profit 12.1 15.1 17.0 19.7 Valuation metrics (x) P/E 15.1 13.5 9.7 9.2 P/B 0.81 0.79 0.73 0.69 Dividend yield (%) 2.13 2.13 2.13 2.13 EV/sales 2.56 2.83 2.23 2.38 EV/EBITDA 7.9 9.6 8.0 7.9 EV/EBIT 9.4 12.4 9.9 10.0 ROE analysis (%) ROE 5.62 5.89 7.77 7.68 ROIC 6.97 4.54 5.38 4.90 Asset turnover (x) 0.19 0.17 0.20 0.18 Interest burden (x) 0.89 0.83 0.87 0.87 Tax burden (x) 0.90 0.82 0.82 0.80 Financial leverage (x) 1.83 1.73 1.71 1.66 Credit ratios Net debt/equity (%) 26.0 23.4 19.8 16.5 Net debt/EBITDA (x) 2.29 2.68 2.05 1.87 Interest cover (x) 9.1 6.0 8.0 7.7


02468

101214161820

2010 2011 2012 2013 2014 2015

12MF P/E multiple

0.000.200.400.600.801.001.201.401.601.80

2010 2011 2012 2013 2014 2015

12MF P/B multiple

Source: IBES

26 November 2015


Multiple catalysts ahead We assume coverage of CDL with an OUTPERFORM rating and target price of S$12.00. We believe that multiple catalysts lie ahead for CDL, with further upside likely to be driven by: (1) asset divestments to unlock portfolio value, (2) positive sales momentum from overseas investments, (3) a pick-up in sentiment in 2016, with the potential tweaking of residential policy measures, (4) a potential re-inclusion into the FTSE EPRA/NAREIT Global Real Estate Index.

Unlocking value through capital recycling We believe CDL has an underappreciated portfolio of investment properties, the value of which could be potentially unlocked near term through an asset divestment, while retaining long term asset ownership; similar to the Profit Participation Securities (PPS) investment structure launched in Dec-14. We view this as a key catalyst for CDL, given that it allows the company to: (1) realise a healthy gain on divestment, (2) crystallise value on its balance sheet through a narrowing of the discount to RNAV and (3) recycle cash proceeds for future investments.

We estimate CDL's Singapore office portfolio to be worth S$3.9 bn collectively, with potential pipeline assets likely to include stabilised assets such as Republic Plaza (S$1.8 bn), Fuji Xerox Towers (S$600 mn) and Manulife Centre (S$360 mn). While net gearing remains healthy at 30% as at 3Q15, cash released through the divestment will facilitate future investments, while simultaneously crystallising CDL's asset value in its share price.

Figure 74: Singapore commercial assets by NLA ('000 sq ft.)

Figure 75: Singapore commercial assets by value (S$mn)

Office, 2,267, 47%

Retail, 847, 18%

Industrial, 1,098, 23%

Mixed developments,

567, 12%

Office, $3,894mn

(59%)Retail,

$1,300mn (20%)

Industrial, $276mn (3%)

Hotel (ex M&C), $297mn (4%)

Mixed developments,

$1,039mn (14%)

Note: Excludes hotel assets owned directly by CDL. For 2015E Source: Company data, Credit Suisse estimates.

For 2015E. Source: Company data, Credit Suisse estimates

Disposal of 'non-core' industrial assets It was reported in the Business Times in August 2015 that CDL could be in advanced stages of divesting its industrial properties for S$300-350 mn. In November 2010, CDL sold a 45 year lease of New Tech Park to Sabana REIT for a consideration of S$305.9 mn. CDL however has reversionary interest of the property at the expiry of the 45 year lease. Based on disclosures made by Sabana REIT, New Tech Park alone was valued at S$352.6 mn as at 31 Dec 2014.

We think capital recycling initiatives will be a key catalyst for CDL, allowing CDL to realise a divestment gain, crystallise balance sheet value and recycle cash proceeds

26 November 2015


We currently estimate CDL's industrial asset portfolio to be worth c. S$276 mn, and highlight that these assets do not represent a significant share of CDL's total investment property portfolio, and neither are they likely to be seen as a core part of CDL's portfolio. An outright divestment is thus likely for these assets, with divestment gains likely to be meaningful given that these assets are currently held at historical costs on CDL's balance sheet.

Figure 76: Industrial assets portfolio of CDL Building Location Tenure

(yrs) Site area

(sq ft) GFA

(sq ft) Effective

stake Cap rate

(%) Asset value

(100%) (S$ psf)

Asset value (100%)

(S$ mn)

Effective asset value

(S$ mn) Industrial 434 276 New Tech Park* Suburbs 999* 428,382 603,210 43% 6.0% 411 276 118 Citilink Warehouse Complex Suburbs Freehold 152,331 103,301 100% 6.0% 524 47 47 Cideco Industrial Complex Suburbs Freehold 58,965 133,860 100% 6.0% 118 26 26 City Industrial Building Suburbs Freehold 33,906 127,412 100% 6.0% 411 58 58 Tagore 23 Suburbs Freehold 79,847 129,877 100% 6.0% 151 26 26

* CDL has reversionary interest of the property at the expiry of the 45-year lease sold to third party in 2010. Source: Company data, Credit Suisse estimates.

Monetising underappreciated commercial assets We believe the divestment of its office and retail assets held by CDL would represent the bigger opportunity for CDL in realising the value of its investment properties, with long term asset ownership/right-of-first refusal likely retained; similar to the Profit Participation Securities (PPS) investment structure launched in Dec-2014. Management has indicated that future deals will likely involve stabilised assets; hence we think that the recently completed South Beach mixed development is unlikely to be considered near term.

A summary of the PPS deal for the Quayside Collection (Sentosa Assets):

Rather than a one-off exercise, we view the PPS deal as the precedent for future transactions to come for CDL, with the theme of unlocking value from its balance sheet likely to continue gaining strategic relevance for the company.

As a refresher, key terms of the PPS deal announced in December 2014 are as follows:

Figure 77: Summary of the PPS deal Figure 78: Cash flow and P&L impact to CDL

SPV investment structure

PPS investors

S$ mn Assets in which cash flows are derived from

Total S$1.5 bn CIMB 102 W Sentosa 240 room hotel

Debt S$750 mn CDL 281 Quayside Isle (retail)

44,121 sq ft

Equity (PPS)

S$750 mn Blackstone 367 The residences at W

418,682 sq ft*

S$mn Consideration from PPS holders 800.0 Repayment of shareholder loan 700.0 Total consideration 1,500.0 Less: Interest retained as investment in associate (211.0) Transaction costs (205.8) Cash disposed off (8.2) Net cash inflow 1,075.0 Total consideration 1,500.0 Less: Net identified assets on disposal (712.1) Provision for cash flow support (24.9) Transaction costs (205.8) Fixed payout received by the group 70.3 Gain from loss of control 627.5 Unrealised gain on interest retained (296.6) Gain recognised in P&L 330.9

* Sellable area. Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates

■ Sale of the present and future cash flows of the Quayside Collection assets (held under "Cityview") to a special purpose vehicle (SPV), "Sunbright Holdings" for S$1.5 bn. This comprises S$800 mn in consideration and S$700 mn shareholder loan due to CDL.

An outright divestment of industrial assets likely, with sizable divestment gains, given the assets are held at historical costs

Monetisation will likely involve CDL's stabilised assets with long-term ownership/ROFR likely retained

Theme of unlocking value from its balance sheet likely to continue gaining strategic relevance

26 November 2015


■ This was arrived taking into account the future cash flows to be derived from the Quayside Collection assets, assuming the residential units would eventually be sold at not less than S$2,400 psf (these are c. 60% leased at present).

■ The SPV "Sunbright Holdings" will be funded via S$750mn of senior loan facilities from DBS and OCBC, and S$750mn of PPS securities with a tenor of five years.

■ Investors in the PPS securities include: CDL (37.5%), Blackstone (48.9%) and CIMB Bank (13.6%).

■ PPS investors will receive a fixed payout based on 5% interest p.a. for a period of five years, in addition to the excess cash flows (after loan interest and creditors) derived over the period. Total fixed payout of S$187.5 mn has been paid up-front.

■ CDL remains the legal owner of the Quayside Collection assets, although the SPV "Sunbright Holdings" is now deemed an associate as management decisions are undertaken by an investment committee (CDL has 5 of 12 seats).

Office assets likely to be potential candidates

As at 30 Sep 2015, investment properties represented S$3.1 bn on its balance sheet, against our estimated value of S$7.6 bn or S$7.93 per share. We believe that CDL's office assets, much of which is located in the Central Business District (CBD) would likely be potential candidates. Given that much of its retail assets are either strata-titled units or in less attractive locations, these may be less attractive to potential investors of the investment structure. We estimate CDL's Singapore office portfolio to be worth S$3.9 bn collectively, as detailed in Figure 79.

Figure 79: CDL office and retail asset portfolio Building Location Tenure

(yrs) Site area

(sq ft) GFA

(sq ft) Effective

stake Cap rate

(%) Asset value (100%) (S$

psf)

Asset value (100%)

(S$ mn)


(S$ mn) Office 3,894 3,894 Republic Plaza CBD 999 72,818 782,482 100% 3.80% 2,334 1,826 1,826 City House CBD 999 13,692 157,164 100% 4.00% 1,601 252 252 Fuji Xerox Towers CBD Freehold 58,061 354,456 100% 4.00% 1,700 603 603 Manulife Centre CBD 999 53,518 241,510 100% 4.00% 1,485 359 359 Delfi Orchard Orchard Rd Freehold 20,258 71,268 100% 4.00% 2,238 159 159 The Arcade CBD 999 21,905 47,480 100% 4.00% 1,709 81 81 King's Centre CBD - Fringe 99 55,822 90,341 100% 4.00% 662 60 60 7 & 9 Tampines Grande Suburbs 99 86,111 287,256 100% 5.00% 940 270 270 11 Tampines Concourse Suburbs 15 124,011 104,345 100% 5.00% 835 87 87 Central Mall (office) CBD - Fringe Freehold 30,440 130,771 100% 4.00% 1,511 198 198 Retail 1,307 1,278 City Square Mall CBD - Fringe Freehold 160,598 450,696 100% 5.5% 2,428 1,948 878 Palais Renaissance Orchard Rd Freehold 29,159 110,233 100% 5.5% 2,421 1,302 144 Tanglin Shopping Centre Orchard Rd Freehold 68,512 67,651 61% 5.5% 1,757 1,086 73 Katong Shopping Centre East Coast Freehold 87,909 88,727 100% 5.5% 1,281 850 75 Grand Copthorne Waterfront (retail)

CBD - Fringe Freehold 31,388 100% 5.5% 1,763 1,948 61

Central Mall (retail) CBD - Fringe 99 51,731 54,659 100% 5.5% 1,657 1,383 76 * Retail assets exclude Quayside Isle, already a part of the PPS portfolio. Source: Company data, Credit Suisse estimates.

Recent office transactions supportive of valuations

While there are concerns over the potential oversupply of office space in the near term, we believe that CDL's stabilised and diversified portfolio of office assets could be attractive to potential investors, with recent transaction values likely to be supportive of valuations.

For example, we estimate CDL's single largest asset, Republic Plaza to be valued at S$1,826 mn or S$2,344 psf in our RNAV estimates. This compares favourably to recently transacted prices of Grade-A properties in the Raffles Place area, including One Raffles Place (S$2,382 psf), Straits Trading Building (S$2,800 psf), Prudential Tower (S$2,316 psf).

As at 30 September 2015, investment properties represented S$3.1 bn on its balance sheet, against our estimated value of S$7.6 bn

26 November 2015


Figure 80: Recent major commercial transactions Date Building Transaction

value (S$ mn) S$ psf Buyer Seller NLA (sq ft)

4-Nov-15 Suntec Tower Two (Strata) 101.6 2,605 Suntec REIT Maybank Kim Eng 39,000 10-Jun-15 One Raffles Place 1148.8 2,382 OUE CT OUE 860,000 3-Aug-15 Thong Sia Building 380 2,430 Sin Capital 156,379 22-Jun-15 PWC Building (30% stake) 150 1,408 DBS Group CapitaLand 106,500 31-Mar-15 Samsung Hub (8th floor) 43 3,250 HK based property investment

company Sun Venture Group 13,110

30-Jan-15 AXA Tower 1,169 1,735 Consortium led by Perennial Real Estate Holdings

Blackrock (MGPA Fund 2) 674,000

18-Dec-14 Straits Trading Building 450 2,800 Sun Venture Group Straits Trading Co 159,000 28-Oct-14 Samsung Hub (21st floor) 42 3,280 Korean family office Church Street Holdings 12,841 9-Oct-14 Samsung Hub (19th floor) 42 3,175 Foreign buyer Church Street Holdings 13,121 26-Sep-14 MBFC Tower 3 (33%) 1,248 2,790 Keppel REIT Keppel Land 447,327 26-Sep-14 Prudential Tower (92.8%) 512 2,316 KOP (25%), Lian Beng (32%),

KSH (28%), Centurion (15%) Keppel REIT 221,080

4-Sep-14 Samsung Hub (18th floor) 42 3,225 Asian based O&G company Church Street Holdings 13,132 20-Aug-14 Equity Plaza 550 2,181 GSH Properties (51%), TYJ

(14%), Vibrant DB2 (35%) Keppel Land (65%), Alpha Funds (35%)

252,135

12-Apr-14 Samsung Hub (14th floor) 40 3,030 China based co. Arch Capital Management 13,110 30-Jan-14 Finexis Building (strata -

50%) 124 2,300 Sin Capital Partners Partnership between Buxani

Group and offshore investors 53,830

28-Jan-14 Incity Lofts (700 Beach Road) 120 1,781 Whitbread Fine Grain (18%) and Hirsch Bedner (82%)

67,364

4-Jan-14 Westgate Tower 579 1,900 Low Keng Huat (40%), Sun Venture Homes (60%)

CMA:CMT:CAPL (50:30:20) 304,963


Geographical diversification on track Since his appointment as CEO on 17 Feb 2014, Mr Grant Kelley has pioneered the creation of CDL's PPS investment structure, while simultaneously accelerating CDL's overseas expansion initiatives, with $1.3 bn worth of overseas assets acquired in 2014. Core overseas markets CDL will focus on include the US, UK, Japan, China and Australia.

At present, we think the market has not given CDL credit for its overseas development projects, given the lack of earnings visibility. While overseas revenue contribution (ex-hotel operations of M&C) represented only 5% of group revenues, come 2016, positive sales momentum from its residential launches in the UK, China and potentially Japan could validate CDL's diversification efforts.

Positive sales momentum from its residential launches in the UK, China and potentially Japan could validate CDL's diversification efforts

26 November 2015


Figure 81: CDL geographical revenue breakdown (S$mn) Figure 82: CDL's attributable land bank by sector (sq ft.)

1,475 1,576 1,714 1,501 1,908

1,577 1,563 1,536 1,543 1,678

51 141 104 118 177

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014

Singapore (ex M&C) M&C Overseas (ex M&C)

Local residential, 1,030,395 (39%)

Local commercial/hotel, 120,189 (5%)

Overseas commercial/hotel, 294,619 (11%)

Overseas residential,

1,204,066 (45%)

Source: Company data, Credit Suisse estimates Note: As at 30 June 2015. Source: Company data

Development projects that could see earnings contributions as early as 2016 include Eling Residences in Chongqing, China, Shanghai Luxury Residential Project (Hongqiao Royal Lake), and 202 Kings Road located in Reading, UK. We estimate these projects could contribute S$166 mn to sales in 2016E.

Figure 83: Status of CDL's overseas residential development projects Project City/District Effective

interest Site area

(sq mn) Status

China Eling Residences Yuzhong, Chongqing 100% 27,197 Expected completion in 2016. 126 units to be launched for sale in 4Q15 Hong Leong City Centre

Suzhou Jinji Lake 70% 45,455 Project completion in 2017. 381 residential units in Tower 1 (462 units) and 3 (899 units) were sold, representing more than 80% of the units in Tower 1, while Tower 3 was only recently launched. Completion and handover for both towers 1 and 3 expected in 2016.

Huang Huayuan Yuzhong, Chongqing 100% 23,512 Unit mix being finalised, works on project to resume in 2016 Shanghai Luxury Residential Project

Qingpu, Shanghai 100% 163,837 Completed project acquired in Dec 2014, through the acquisition of developer. 85 unsold units (GFA of 35,732 sq m), new showflat by 4Q15

UK 31-35 Chesham Street Belgravia, London 100% 133 Commenced building works, target for sale close to completion 90-100 Sydney Street Chelsea, London 100% 280 Commenced building works, target for sale close to completion 32 Hans Road Knightsbridge, London 100% 175 Commenced building works, target for sale close to completion 28 Pavilion Road Knightsbridge, London 100% 1,315 Close to receiving planning approval Emerald House, 15 Lansdowne Road

Croydon, London 100% 4,038.5 Close to receiving planning approval

202 Kings Road Reading, Berkshire 100% 3,399 45 contracts exchanged and 33 reserved. Profits on target for 3Q16 Teddington London 100% 18,211 Project to comprise 213 units. Expect planning approvals in 1Q16, while

sales launch targeted in 2Q16 Japan Freehold site Shirokane, Tokyo 94.52% 16,815 Site acquired in September 2014. Design scheme revision in progress Malaysia Jalan Kolam Ayer Johor Bahru 100% 24,739 Land bank Jalan Waspada Johor Bahru 100% 6,368 Land bank


26 November 2015


Singapore residential Near term, we acknowledge that CDL is still seen as a proxy to the Singapore residential segment, given its sizeable land bank (1mn sq. ft.) and projects in the pipeline; but highlight that with market transaction volumes at a trough, the company will be a key beneficiary should there be a pick-up in sentiment in 2016, with the potential tweaking of policy measures.

Figure 84: CDL GAV estimates by segment Figure 85: Singapore residential exposure by asset value

Singapore Office29%


24%

Hospitality20%


11%

Singapore Retail9%

Others7%

CCR, $2,792mn (74%)

RCR, $441mn (12%)

OCR, $171mn (4%) EC, $368mn

(10%)

Note: For 2015E. Source: Company data, Credit Suisse estimates Note: For 2015E. Source: Company data, Credit Suisse estimates

Pipeline of launch-ready high-end projects in 2016

Within the Singapore residential market, we have a relative preference for the high-end (CCR) segment, and in the case of CDL, a majority of future project launches are located in the CCR, notably Gramercy Park, New Futura, Nouvel 18 and South Beach Residences. It was earlier reported that CDL rejected a S$26 mn offer for a unit at the South Beach Residences, equivalent to a price of c. S$4,000 psf. We have assumed an ASP of S$2,800 psf, but as the project is not subject to ABSD or QC conditions, we think CDL will be selective about timing the launch of its inventory of 190 units at the project.

Nevertheless, any relaxation of property cooling measures could stimulate sales in the high-end segment particularly and prompt CDL to launch some of these projects. This is especially if measures targeting foreigners are relaxed, given the higher incidence of foreign buying in the high-end segment historically. Given that these new launch projects are slated for completion in 2016, incremental sales will be recognised immediately upon sale, thus supporting near-term earnings visibility for the group.

CDL will be a key beneficiary should there be a pick-up in sentiment with the potential tweaking of measures

Given that the high-end new launch projects are slated for completion in 2016, incremental sales will be recognised immediately upon sale, thus supporting near-term earnings visibility

26 November 2015


Figure 86: CDL current projects and future launches Project Region Total units Units sold as

of 30-09-2015 % of total units sold

Expected completion

Bartley Ridge RCR 868 862 99% 2016 Coco Palms OCR 944 822 87% 2Q2019 Commonwealth Towers RCR 845 389 46% 2017 D'Nest OCR 912 869 95% 4Q2017 Echelon RCR 508 505 99% 4Q2016 Jewel @ Buangkok OCR 580 552 90% 4Q2016 The Brownstone (EC) EC 600 289 45% 2019 The Venue Residences RCR 266 98 37% 3Q2017 UP @ Robertson Quay CCR 70 55 79% 1Q2016 The Criterion (EC) EC 490 45 - 2018 Future launches: Gramercy Park CCR 174 - - 4Q2016 New Futura CCR 150 - - 2016 Nouvel 18 CCR 156 4Q2014 South Beach Residences CCR 190 - - 2016


Opening of South Beach to contribute to rental income in 2016

We expect earnings contribution from South Beach, CDL's joint venture project with IOI Group, to progressively kick in, following the phased opening of the project in 2015; allaying concerns over the leasing of the project, as tenants for the office and retail space are already largely secured. We estimate CDL's share of JV profits to be S$22 mn in 2016E.

■ South Beach Tower (Office): 510,000 sq ft. of Grade A office space, 96% of which has already been leased, which mitigates any concerns surrounding the significant supply of office space coming on stream in 2016. Advanced negotiations are under way for the remaining 4% of space. We estimate rents to be c. S$10 psf per month.

■ The South Beach (Hotel): 654-room luxury hotel, including 49 suites which had its soft launch in September 2015. Published room rates are c. S$500 per night, vs. our assumed RevPAR of S$399.

■ Retail: Approximately 37,000 sq ft of retail space and a 29,000 sq ft club will complete its opening by the end of 2015. We have assumed rents of S$15 psf per month.

Top pick amongst the developers We reiterate our OUTPERFORM rating on CDL with a TP of S$12.00, based on a 7% discount to RNAV (historical average). We believe concerns over the Singapore residential market have been overdone, with non-residential segments making up 65% of its GAV while contributing a sizeable c. 59% of PBT in FY15E.

In addition, assuming residential ASPs fall a further 20%, our RNAV only falls by 5%. We believe current valuations are attractive, with CDL currently trading at a 41% discount to RNAV (-1.4 SD vs historical average of 7%) while trading at 0.79x P/B (-1.4 SD vs historical average of 1.9x). It is worth highlighting that CDL does not revalue its investment properties but holds them on the balance sheet at cost less accumulated depreciation; hence we think CDL's book values are a conservative measure of value. As at 30 Sep 2015, CDL's investment properties are held at S$3.1 bb vs. S$7.6 bn according to our RNAV estimates.

We believe concerns over the Singapore residential market have been overdone; assuming ASPs fall a further 20%, our RNAV only falls by 5%

26 November 2015


Figure 87: Sensitivity analysis of residential and commercial asset price changes to our RNAV estimate of S$12.85 Residential price changes from our current estimates 10% 5% 0% -5% -10% -15% -20% -25% -30%

Com

mer

cial

ass

et v

alue

ch

ange

s fr

om o

ur

curr

ent e

stim

ates

10% 8.8% 7.5% 6.2% 4.8% 3.5% 2.2% 0.8% -0.5% -1.8% 5% 5.8% 4.4% 3.1% 1.8% 0.4% -0.9% -2.3% -3.6% -4.9% 0% 2.7% 1.3% 0.0% -1.3% -2.7% -4.0% -5.3% -6.7% -8.0%

-5% -0.4% -1.8% -3.1% -4.4% -5.8% -7.1% -8.4% -9.8% -11.1% -10% -3.5% -4.8% -6.2% -7.5% -8.8% -10.2% -11.5% -12.8% -14.2% -15% -6.6% -7.9% -9.3% -10.6% -11.9% -13.3% -14.6% -15.9% -17.3% -20% -9.7% -11.0% -12.3% -13.7% -15.0% -16.3% -17.7% -19.0% -20.4% -25% -12.8% -14.1% -15.4% -16.8% -18.1% -19.4% -20.8% -22.1% -23.4% -30% -15.8% -17.2% -18.5% -19.8% -21.2% -22.5% -23.9% -25.2% -26.5%

Source: Credit Suisse estimates

Re-inclusion to the FTSE EPRA/NAREIT index could renew interest

While not a fundamental driver for the company, CDL's share price has been negatively impacted by the unexpected deletion from the FTSE EPRA/NAREIT Global Developed Index, announced on 4 June 2015 and effective 22 June 2015. Based on FTSE's inclusion criteria, 75% of total EBITDA has to be derived from relevant real estate activities, i.e. the ownership, trading and development of income-producing real estate. M&C's contributions were deemed to be non-relevant real estate activities, but as close to 60% of M&C's hotel room inventory is classified as owned or leased, we believe that improved earnings disclosure could enable CDL to meet FTSE's criteria.

A potential re-inclusion could spark a renewed interest in the stock, particularly in light of current valuations. However, we understand that FTSE will only review this at the next quarterly review, after the release of CDL's full year audited results.

Figure 88: Share price performance post FTSE deletion Figure 89: M&C room inventory by ownership type

90.091.092.093.094.095.096.097.098.099.0

100.0101.0

4-Jun

-155-J

un-15

6-Jun

-157-J

un-15

8-Jun

-159-J

un-15

10-Ju

n-15

11-Ju

n-15

12-Ju

n-15

13-Ju

n-15

14-Ju

n-15

15-Ju

n-15

16-Ju

n-15

17-Ju

n-15

18-Ju

n-15

19-Ju

n-15

20-Ju

n-15

21-Ju

n-15

22-Ju

n-15

(4 Jun = 100)

CDL STI Index CAPL

Hotels Room count (No.) 2014 2013 2014 2013 Owned or leased 64 62 19,044 18,434 Managed 31 28 8,780 7,984 Franchised 10 11 1,427 1,564 Investment 15 13 4,116 3,751 Total 120 114 33,367 31,733 (%) Owned or leased 53% 54% 57% 58% Managed 26% 25% 26% 25% Franchised 8% 10% 4% 5% Investment 13% 11% 12% 12% Total 100% 100% 100% 100%

Source: Thomson Reuters, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Initiation of share buybacks not ruled out

CDL currently has a mandate for the purchase of up to 10% of the total number of issued shares of the company. The company has not bought back any of its shares historically, with management noting in its 1H15 results briefing that it did not have plans to do a buyback at that point.

However, we highlight that with the stock having derated further since August 2015, CDL shares are now trading at a P/B of 0.79x, 1.4 standard deviation below its historical average of 1.9x. We do not rule out the initiation of share buybacks, and believe that such a move will bolster shareholder confidence and provide downside support to its share price.

We believe improved earnings disclosure could enable CDL to meet FTSE's criteria, and spark a renewed interest in the stock

An initiation of buybacks under its 10% mandate will bolster shareholder confidence and provide downside support

26 November 2015


Figure 90: CDL Premium/(discount) to RNAV Figure 91: CDL Price-to-book

-52.8-41.4

-6.8

18.0

-31.6

-80

-60

-40

-20

0

20

40

60

80


(%)

CIT Prem/(disc) to RNAV Mean - (6.8)% ± 1 std

0.79

1.87

2.65

1.08

0.00.51.01.52.02.53.03.54.04.55.0

Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12

City Dev. - P/B Average - 1.87 ±1 std. dev.

P/B


Figure 92: City Developments RNAV estimates

Asset value


GAV per share

As % of total GAV

(S$mn) (S$mn) Singapore Investment Properties: 8,488 6,806 7.13 44% Office 3,894 3,894 4.08 25% Retail 1,365 1,300 1.36 8% Industrial 434 276 0.29 2% Hotel (ex M&C) 721 297 0.31 2% South Beach (ex-resi) 2,074 1,039 1.09 7% Overseas Investment Properties: 1,298 755 0.79 5% Office 851 557 0.58 4% Retail 447 198 0.21 1% Singapore Residential: 3,771 3.95 24% Overseas Residential: 1,710 1.79 11% Stake in listed subsidiaries: Stake Shares (m) Local Price Exch. rate SGD Price 2,400 2.52 16% - Millennium & Copthorne 65% 325.0 5.10 2.17 11.07 2,338 2.45 15% - City e-Solutions 53% 382.5 1.70 0.18 0.25 62 0.07 0% Total GAV 15,442 16.19 100% Adjusted Net Debt 3,180 Total RNAV 12,263 Fully diluted no. of shares (mn) 954 RNAV per share (S$) 12.85 TP premium/(discount) to RNAV -7% Target price (S$) 12.00 Source: Company data, Credit Suisse estimates. M&C value based on CS target price, City e-Solutions based on market price as at 24 Nov 15

26 November 2015


Appendix I: Summary of financials S$ mn, FYE Dec 2013A 2014A 2015E 2016E 2017E Income statement Revenue 3,162 3,764 3,345 4,138 3,760

Property development 1,198 1,581 1,057 1,814 1,362 Rental properties 314 385 389 396 403 Hotel operations 1,543 1,678 1,779 1,808 1,876 Others 107 120 120 120 120

Operating profit 869 1,026 762 932 897 Interest expense -73 -112 -127 -117 -117 Interest Income 29 36 50 47 51 Share of profit of jointly controlled entities 68 55 84 133 222 Profit before tax 892 1,004 769 996 1,053

Property development 413 532 321 538 567 Rental properties 300 146 150 171 175 Hotel operations 160 333 297 287 311 Others 20 -7 0 0 0

Tax -69 -95 -115 -149 -158 Profit after tax 823 909 653 847 895 MI -140 -139 -134 -129 -140 Profit attributable to shareholders 683 770 519 718 755 Core net profit 504 454 507 705 742 Balance sheet Fixed assets 4,422 4,918 4,996 5,070 5,140 Investment properties 3,173 3,109 3,109 3,109 3,109 Interests in associated companies 265 307 307 307 307 Interests in jointly controlled entities 772 821 905 1,038 1,260 Financial assets 85 76 76 76 76 Other non-current assets 109 150 149 151 150 Trade and other debtors 1,642 1,589 1,412 1,746 1,587 Properties held for sale 4,327 4,793 4,993 5,193 5,393 Other current assets 39 39 39 39 39 Cash and cash equivalents 2,940 3,898 3,499 3,764 4,035 Total assets 17,774 19,701 19,485 20,495 21,097 LT borrowings 4,401 4,466 4,093 4,093 4,093 Deferred taxation 329 317 317 317 317 Other non-current liabilities 164 185 185 185 185 Trade and other creditors 1,327 1,463 1,300 1,608 1,462 ST borrowings 1,114 2,233 2,046 2,046 2,046 Provision for taxation 188 194 194 194 194 Other current liabilities 36 67 67 67 67 Total liabilities 7,558 8,925 8,202 8,510 8,363 Shareholders' equity 7,731 8,410 8,784 9,356 9,966 MI 2,484 2,365 2,499 2,628 2,768 Total equity 10,216 10,776 11,283 11,985 12,734 Ratios ROE (%) 9.1 9.5 6.0 7.9 7.8 ROE (excluding exceptionals) 6.7 5.6 5.9 7.8 7.7 P/B (x) 0.9 0.8 0.8 0.7 0.7 P/E (x) 13.4 14.9 13.4 9.6 9.1 Net debt/Equity (%) 25.2 26.0 23.4 19.8 16.5 Source: Company data, Credit Suisse estimates

26 November 2015


Appendix II: Company description Figure 93: CDL's business structure

35%

36%

65%50.1% 35%

City Developments

Investment properties Hotels Property development

Millennium & Copthorne

Others

CDL Hospitality Trust

South Beach Consortium City e-Solutions

First Sponsor


Figure 94: Revenue by segment Figure 95: PBT by segment

1,447 1,125 1,344 1,415 1,198

1,581

281 332

281 304 314

385

1,492 1,577

1,563 1,536 1,543

1,678

53 69 92 99

107

120

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014

Property Development Rental Properties Hotel Operations Others

(S$ mn)

3,273 3,103 3,280 3,354

3,764

3,162

545421

536 468 413532

123 422326

178 300 146

133

205282

250 16033331

19

6420

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012 2013 2014

Property Development Rental Properties Hotel Operations Others

(S$ mn)

832

1,067 1,136

960 1,004892

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

26 November 2015


Figure 96: Revenue by geography

1,972 1,773 1,877 2,027 1,8362,228

476470 450 440

446

498309299 296 307

306

357515 562 658 579

575

681

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2009 2010 2011 2012 2013 2014

Singapore US UK Other countries

(S$ mn)

3,273 3,103 3,280 3,354

3,764

3,162


26 November 2015


Asia Pacific / Singapore Real Estate Management & Development

CapitaLand (CATL.SI / CAPL SP)

ASSUMING COVERAGE

Uncertainties on the road to growth ■ Steady progress in strategy execution. We assume coverage of

CapitaLand (CAPL) with a NEUTRAL rating and a TP of S$3.50. Management has made good progress in streamlining its business structure, optimising its cost base and reducing earnings volatility, with 75% of assets contributing to recurring income at present. We are also heartened by the capital discipline shown by CAPL, during the recent Asia Square Tower 1 discussions.

■ On track to deliver core earnings growth. We expect CAPL to grow core earnings from S$705 mn in 2014 to S$1,047 mn in 2017E, underpinned by the fruition of its prior investments. However, we believe that execution over the next few years will be key. We expect muted 2015E core net profit growth at 3% YoY, due to lower development profits and impairments made. We expect earnings momentum from 2016 to pick up, however, driven by: contributions from CapitaGreen, progressive leasing of Raffles City projects and for CMA, continued yield improvements at existing malls and the opening of four malls in China in 2016. We thus expect core ROEs to improve marginally from 4.3% in 2014 to 5.6% in 2017E.

■ Could headline ROE reach 8-12% in 2016E? We forecast core PATMI of S$920 mn in 2016E, which would imply c.S$530 mn in gains required to achieve an 8% ROE. A potential divestment of CapitaGreen or revaluation gains on projects under development could be supportive. Despite the subjectivity surrounding revaluation gains, we think there could be downside risks on: (1) potential impairments/provisions, (2) macro headwinds in China weighing on operational performance and (3) slower residential pre-sales (residential/strata properties still constitute 30-40% of operating EBIT).

■ Valuations undemanding, but not compelling. While valuations are undemanding at 0.76x P/B (-0.5 SD from average), we think near-term upside is limited, given the uncertainty around earnings and the achievement of management ROE targets in 2016E, and execution risk on the sizeable S$6.9 bn (100% basis) pipeline of projects due for completion. Our TP of S$3.50 is based on a 16% discount (historical average) to RNAV of S$4.21.

Share price performance

8090100110120

23456

Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the FTSE STRAITS TIMES IDX which closed at 2923.49 on 24/11/15 On 24/11/15 the spot exchange rate was S$1.41/US$1

Performance over 1M 3M 12M Absolute (%) -0.3 11.4 -5.7 Relative (%) 4.4 9.6 6.8

Financial and valuation metrics

Year 12/14A 12/15E 12/16E 12/17E Revenue (S$ mn) 3,924.6 4,010.7 3,779.5 4,153.8 EBITDA (S$ mn) 2,436.9 2,461.8 2,508.3 2,681.9 EBIT (S$ mn) 2,436.9 2,461.8 2,508.3 2,681.9 Net attributable profit (S$ mn) 705.2 725.3 920.0 1,049.0 EPS (CS adj.) (S$) 0.17 0.17 0.22 0.25 Change from previous EPS (%) n.a. -4.3 11.6 16.5 Consensus EPS (S$) n.a. 0.16 0.18 0.20 EPS growth (%) 32.1 2.7 26.8 14.0 P/E (x) 18.9 18.4 14.5 12.7 Dividend yield (%) 2.9 2.9 2.9 2.9 EV/EBITDA (x) 10.9 10.9 10.6 10.2 ROE (%) 4.3 4.3 5.2 5.7 Net debt/equity (%) 57.0 55.3 51.9 51.4 NAV per share (S$) — 4.21 — — Disc./(prem.) to NAV (%) — 25.7 — —


Rating NEUTRAL Price (24 Nov 15, S$) 3.13 Target price (S$) (from 4.70) 3.50¹ Upside/downside (%) 11.8 Mkt cap (S$ mn) 13,379 (US$9,488

) Enterprise value (S$ mn) 26,865 Number of shares (mn) 4,274.31 Free float (%) 61.0 52-week price range 3.79-2.68 ADTO - 6M (US$ mn) 28.1

*Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. ¹Target price is for 12 months.

Research Analyst Louis Chua

65 6212 5721 [email protected]

26 November 2015


CapitaLand CATL.SI / CAPL SP Price (24 Nov 15): S$3.13, Rating: NEUTRAL, Target Price: S$3.50, Analyst: Louis Chua Target price scenario Scenario TP %Up/Dwn Assumptions Upside 4.68 49.44 11% premium to our RNAV of S$4.21 Central Case 3.50 11.82 16% discount to our RNAV of S$4.21 Downside 2.44 (21.92) 42% discount to our RNAV of S$4.21

Key earnings drivers 12/14A 12/15E 12/16E 12/17E CapitaLand China (S$ mn) 170.6 287.5 406.8 370.7 CMA (S$ mn) 440.3 328.7 278.8 424.6 Capitaland Singapore (S$ mn) 611.1 426.3 425.2 424.6 Ascott Ltd (S$ mn) 248.9 280.3 293.0 305.9

Income statement (S$ mn) 12/14A 12/15E 12/16E 12/17E Sales revenue 3,925 4,011 3,780 4,154 Cost of goods sold 2,543 2,231 2,059 2,284 SG&A — — — — Other operating exp./(inc.) (1,055) (682) (787) (812) EBITDA 2,437 2,462 2,508 2,682 Depreciation & amortisation — — — — EBIT 2,437 2,462 2,508 2,682 Net interest expense/(inc.) 439.5 511.8 519.5 527.3 Non-operating inc./(exp.) — — — — Associates/JV — — — — Recurring PBT 1,997 1,950 1,989 2,155 Exceptionals/extraordinaries 29.1 — — — Taxes 266.9 243.7 248.6 269.3 Profit after tax 1,760 1,706 1,740 1,885 Other after tax income — — — — Revaluations — — — — Minority interests 598.8 421.5 424.7 473.9 Preferred dividends — — — — Reported net profit 1,161 1,285 1,315 1,411 Analyst adjustments (455.6) (559.5) (395.4) (362.4) Net profit (Credit Suisse) 705 725 920 1,049 Cash flow (S$ mn) 12/14A 12/15E 12/16E 12/17E EBIT 2,437 2,462 2,508 2,682 Net interest (256.2) (243.7) (248.6) (204.5) Tax paid — — — — Working capital 51.9 (122.2) 828.0 18.5 Other cash & non-cash items (1,272) (1,214) (1,264) (1,459) Operating cash flow 961 882 1,824 1,037 Capex (935.1) (500.0) (500.0) (500.0) Free cash flow to the firm 26 382 1,324 537 Acquisitions — — — — Divestments 1,226 — — — Associate investments — — — — Other investment/(outflows) — — — — Investing cash flow (333.8) (565.6) (573.7) (571.2) Equity raised 1.4 — — — Dividends paid (704.6) (533.2) (533.9) (534.0) Net borrowings 32.4 — — — Other financing cash flow (3,601) (512) (520) (527) Financing cash flow (4,272) (1,045) (1,053) (1,061) Total cash flow (3,645) (728) 197 (596) Adjustments 29.4 — — — Net change in cash (3,615) (728) 197 (596) Balance sheet (S$ mn) 12/14A 12/15E 12/16E 12/17E Cash & cash equivalents 2,749 2,021 2,217 1,663 Current receivables 963 985 928 1,020 Inventories — — — — Properties under development 7,674 7,842 6,890 7,072 Other current assets 193.7 93.7 93.7 93.7 Current assets 11,580 10,941 10,129 9,849 Property, plant & equip. 1,047 1,104 1,157 1,208 Properties under development — — — — Investment properties 17,149 17,793 18,532 19,310 Investment in Associates/JV 12,781 13,860 14,904 16,000 Intangibles 463.0 463.0 463.0 463.0 Other non-current assets 18,242 18,508 19,248 20,025 Total assets 44,113 44,876 45,901 47,546 Accounts payable 3,070 3,137 2,956 3,249 Short-term debt 3,469 3,300 3,300 3,300 Current provisions — — — — Other current liabilities 463.0 463.0 463.0 463.0 Current liabilities 7,002 6,900 6,719 7,012 Long-term debt 12,517 12,208 12,208 12,208 Non-current provisions — — — — Other non-current liab. 1,386 1,386 1,386 1,386 Total liabilities 20,905 20,494 20,313 20,606 Shareholders' equity 16,758 17,360 17,991 18,719 Minority interests 6,451 7,022 7,597 8,221 Total liabilities & equity 44,113 44,876 45,901 47,546

Per share data 12/14A 12/15E 12/16E 12/17E Shares (wtd avg.) (mn) 4,257 4,265 4,266 4,267 EPS (Credit Suisse) (S$) 0.17 0.17 0.22 0.25 DPS (S$) 0.09 0.09 0.09 0.09 BVPS (S$) 3.93 4.07 4.22 4.39 NAV per share (S$) — 4.21 — — Key ratios and valuation 12/14A 12/15E 12/16E 12/17E Growth(%) Sales revenue (1.3) 2.2 (5.8) 9.9 EBIT 35.5 1.0 1.9 6.9 Net profit 32.1 2.8 26.9 14.0 EPS 32.1 2.7 26.8 14.0 Margins (%) EBITDA 62.1 61.4 66.4 64.6 EBIT 62.1 61.4 66.4 64.6 Pre-tax profit 50.9 48.6 52.6 51.9 Net profit 18.0 18.1 24.3 25.3 Valuation metrics (x) P/E 18.9 18.4 14.5 12.7 P/B 0.80 0.77 0.74 0.71 Dividend yield (%) 2.88 2.88 2.88 2.88 EV/sales 6.78 6.70 7.06 6.55 EV/EBITDA 10.9 10.9 10.6 10.2 EV/EBIT 10.9 10.9 10.6 10.2 ROE analysis (%) ROE 4.30 4.25 5.21 5.72 ROIC 6.77 5.80 5.72 5.89 Asset turnover (x) 0.09 0.09 0.08 0.09 Interest burden (x) 0.82 0.79 0.79 0.80 Tax burden (x) 0.87 0.88 0.88 0.88 Financial leverage (x) 1.90 1.84 1.79 1.76 Credit ratios Net debt/equity (%) 57.0 55.3 51.9 51.4 Net debt/EBITDA (x) 5.43 5.48 5.30 5.16 Interest cover (x) 5.55 4.81 4.83 5.09


0

5

10

15

20

25

2010 2011 2012 2013 2014 2015

12MF P/E multiple

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2010 2011 2012 2013 2014 2015

12MF P/B multiple

Source: IBES

26 November 2015


Steady progress in strategy execution We assume coverage of CapitaLand (CAPL) with a NEUTRAL rating and a TP of S$3.50. CAPL has gone through significant transformations since 2013, spearheaded by a new Group CEO, Mr Lim Ming Yan (formerly the COO since May 2011), as the company continues to execute on its ROE target of 8-12% on a sustainable basis.

We believe management has made good progress in streamlining its business structure, optimising its cost base and reducing earnings volatility, with 75% of total assets now contributing to recurring income, and 65% of operating EBIT derived from investment properties.

We are also heartened by the strict capital discipline shown by management, during the recent discussions on the potential acquisition of Asia Square Tower 1, amidst valuation concerns over the high asking price for a trophy asset.

A more streamlined structure

During the 2Q13 briefing, CAPL unveiled its strategy to focus on its core businesses primarily centred on Singapore and China, namely CapitaLand Singapore (CLS), CapitaLand China (CLC), CMA, and Ascott, and divest its non-core assets.

In addition, CAPL set a target to reach a sustained ROE of 8-12% (CAPL achieved a ROE of 7.1% in 2014) from a combination of improving project profitability, recycling stabilised assets, ongoing review of investments and optimising corporate and financing costs.

Figure 97: Simplified business structure Figure 98: From 8 SBUs to 4 SBUs

BEFORE: AFTER:

• Listed entities: 9 • 3 tiers of 9 listed entities • 8 SBUs

• Listed entities: 6 • 2 tiers of 5 listed entities • 4 SBUs

CapitaLand

CapitaLand Commercial

CMA CapitaLand Residential

CapitaValue Homes

Ascott CapitaLand Financial

CapitaLand China

Australand

CapitaLand

CapitaLand China

CapitaLand Singapore

CMA Ascott

BEFORE:

AFTER:

Source: Company data Source: Company data

Within a year, CapitaLand took steps forward in this strategy, with the eventual full divestment of ALZ and the subsequent privatisation of CMA which was announced in April 2014, less than five years after its listing in November 2009.

In addition to outright acquisitions and divestments, management has also been active on the asset recycling front, given its established capital management platforms of 5 REITs (CCT, CMT, CRCT, ART and CMMT) and 16 private equity funds, with aggregate assets under management of over S$43 bn.

75% of total assets now contributing to recurring income, and 65% of operating EBIT derived from investment properties

In 2013, CAPL set a target to reach a sustained ROE of 8-12% in 3-5 years

26 November 2015


Figure 99: Summary of divestments and capital recycling initiatives as CAPL streamlines its businesses Divestments Capital recycling

Date Event Value Business Unit

Date Event Value Business Unit

May-13 Sale of serviced residences and rental housing properties

S$165 mn Core (Ascott)

Apr-13 Transfer of stakes in Qingdao, Wuhan projects to CMCDF III

Core (China)

Jul-13 Sale of 1/3 stake in UK investment properties

S$90.7 mn Non-core Jun-13 Sale of 3 serviced residence properties in China and 11 rental housing properties in Japan to ART

S$165 mn Core (Ascott)

Nov-13 Sale of Technopark@Chai Chee S$193 mn Non-core Jul-13 CRCT announces plans to acquire Grand Canyon Mall from CMA

S$373.0 mn

Core (China)

Nov-13 Sale of 20% of ALZ Key (ALZ) Jul-13 Transfer of stake in Luwan Project to CMCDF III

Core (China)

Mar-14 Sale of remaining 39.1% in ALZ S$970.1 mn

Key (ALZ) Jun-15 Divestment of serviced residences to ART

S$372.8 mn

Core (Ascott)

May-14 Sale of stakes in industrial building (Corporation Park HK), shopping arcade & car park at The Waterside HK

S$58.2 mn

Non-core

Jul-15 Divestment of Bedok Mall to CMT S$783.1mn Core (Singapore)

Feb-15 Divestment of 40% equity interest in Surbana

S$104 mn Others

Aug-15 Divestment of Chitose Mall S$420 mn CMA Aug-15 Divestment of 30% stake in PWC

building S$150 mn Core

(Singapore)


Stability from recurring income

While the simplification of CAPL's structure has been well received, a number of concerns still remain such as the tightening of residential property measures in both Singapore and China, as well as concerns of a slowdown in the China economy. To help mitigate against potential weaknesses in the residential segment, CAPL targets to have 65-75% of assets providing recurring income; already, c.75% of CAPL’s assets comprises investment properties providing a recurring income stream (Figure 101 below). However, from an operating EBIT perspective, only 65% of earnings are derived from investment properties in 9M15 (vs 61% in 2014).

Figure 100: Geographical breakdown of total assets Figure 101: 75% of total assets now contribute to recurring income (from investment properties)

China46%

Singapore37%

Other Asia*11%

Europe & Others^

6%

Total assets S$46.7 bn

29% 35%

25%23%

12%16%2%1%

32% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 3Q15Residential & Office Strata OthersServiced Residences Shopping MallsCommercial & Integrated Developments

Trading properties

Investment properties

* Total assets stated at 100% of property carrying value. For 9M15 Source: Credit Suisse estimates

Note: Total assets by effective stake, excluding treasury cash. Source: Company data as at 30 September 2015

From an operating EBIT perspective, 65% of earnings are derived from investment properties in 9M15

26 November 2015


Capital discipline in Asia Square Tower 1 bid

Earlier in the year, BlackRock indicated that it had received expressions of interest for Asia Square Tower 1, a 43-storey Grade A office building with about 1.2 mn sq ft of NLA. The sale was reported to be potentially the biggest office deal in Singapore, with an acquisition price tag of S$3.5-4.0 bn or c. S$2,800-3,200 psf; amidst a negative outlook on the Singapore office market given the significant supply of 4.3 mn sq ft of NLA coming on stream in the CBD area 2016.

CapitaLand and its consortium partner of Norway’s sovereign wealth fund Norges Bank Investment Management were initially shortlisted as the preferred bidder of the asset. However, following negotiations with BlackRock, CAPL has since announced that it has ceased negotiations regarding the potential acquisition, likely over differing expectations on the terms of the deal. We are thus heartened by the strict capital discipline shown by management, amidst valuation concerns over the high asking price for a trophy asset.

We are heartened by the strict capital discipline shown by management, amidst valuation concerns over the high asking price for a trophy asset

26 November 2015


On track to deliver core earnings growth We expect CAPL to grow core earnings from S$705 mn in 2014 to S$1,047 mn in 2017E. With announced planned investments of over S$25 bn since 2010, earnings growth will be underpinned by the fruition of its prior investments, given that only 68% of investment properties are currently stabilised. Macroeconomic factors aside, we believe that management execution over the next few years will thus be key to unlocking the earnings growth potential from planned investments.

In the near term, we expect core net profit growth to be muted at only 3% YoY, from S$705 mn in 2014 to S$725 mn in 2015E (excluding fair value gains from change in use of development projects of S$171 mn), as a result of lower development profits in Singapore, China, Vietnam and impairment losses made for the International Trade Centre in Tianjin.

We expect earnings momentum from 2016 to pick up however, driven by: contributions from CapitaGreen (officially opened in Sep 2015), progressive leasing of Raffles City Chengdu, Ningbo and Changning and for CMA, continued yield improvements at existing malls and the opening of four new malls in China in 2016. We thus expect core ROEs to improve marginally from 4.3% in 2014 to 5.6% in 2017E.

Fruition of past investments

From 2010 onwards, CAPL has announced planned investments amounting to over S$26 bn (Figure 102) in a combination of both investment properties (recurring income) and residential (where profit is recognised when units sold are completed and handed over).

As highlighted in Figure 103 below, some 15% of CAPL’s investment properties are still under development. Furthermore, whilst a number of the planned investment properties have turned operational (Figure 103) many of these completed assets have yet to stabilise such as CapitaGreen (only expected to contribute from 2016) and Westgate, and a number of assets in China (7 malls opened in 2012 and 2013 and should see strong rent reversions from 2015), thus offering further growth potential.

Figure 102: Investments announced since 2010 Figure 103: Only 68% of investment properties are matured*

0

3,000

6,000

9,000

2010 2011 2012 2013 2014 2015

Luwanintegrated

project

Minhang,Hongkou

malls

SomersetGrand

Project Jewel CMAprivatisation

JV with QIA

Bedok Townsite

CapitaGreenTiangongyuan CapitaMallSKY+

SomsersetGrand Dalian

CL Township

OOILacquisition

Westgate Sky Vue site Coronation(landed) site

Ningbo resisite

Tujia.com

RCShenzhen

RCChongqing

Wuhan mallsite

Hanzhonglusite

Chengdu resisite

Investments (S$ mn)

Properties under devt,

15%

Investment Properties

(not stabilised)^

, 17%Investment Properties

(stabilised), 68%

Source: Company data, Credit Suisse estimates ^ Opened for less than three years; * Calculated based on 100%

value from subsidiaries, and effective share of associates/JVs. Note: As at Dec-2014. Source: Company data

We expect earnings growth to be underpinned by the fruition of its prior investments, although execution remains key

Near term, we only expect a muted 2015E core net profit growth of 3% YoY

26 November 2015


Going forward, we understand that investments are expected to taper off to c.S$1 bn per year. However, management has also indicated that further expansion into markets in Southeast Asia, such as Indonesia, Malaysia and Vietnam may be on the table, and could grow to 5-10% of CAPL’s total portfolio. We expect to see CAPL partner with local players in these markets, similar to what we have seen in China.

Figure 104: CAPL core PATMI trend Figure 105: CAPL core ROE trend

633 698 710

352 369

534

705 725

920

1,049

-60%

-40%

-20%

0%

20%

40%

60%

300

400

500

600

700

800

900

1,000

1,100

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017ECore PATMI YoY growth - RHS

S$ mn %

6.1%5.8%

5.4%

2.5% 2.5%

3.4%

4.3% 4.3%

5.2%5.7%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Source: Company data, Credit Suisse estimates * Excludes Australand. Source: Company data.

Figure 106: Earnings drivers by core business unit Revenue EBIT (include revaluations) S$ mn, FYE Dec 2015E 2016E 2017E 2015E 2016E 2017E Total 4,011 3,780 4,154 1,383 1,464 1,586

CapitaLand Singapore 1,102 1,016 1,032 426 425 425 CapitaLand China 1,322 1,079 1,331 287 407 371 CapitaMalls Asia 676 731 798 329 279 425 Ascott 791 832 873 280 293 306 Others^ 120 120 120 60 60 60

Note: Includes FRS110 (CCT, CMMT, ART consolidated). ^StorHub, Financial Services, Vietnam, Corporate office. Source: Credit Suisse estimates

CapitaLand Singapore (24% of total assets) Residential: A small slice of the pie (<8% of CAPL's assets)

CAPL's residential sales in Singapore have remained muted following the introduction of the Total Debt Servicing Ratio (TDSR) in June 2013, broadly in line with the market. Overall, we do not expect to see a meaningful recovery in sales volumes unless there is some fine-tuning in property measures.

CAPL's existing list of projects launched have largely been sold (Figure 107), and less than 8% of CAPL's total assets is attributed to Singapore residential (and 5% of our GAV). We estimate a 20% decline in Singapore residential prices lowers our RNAV by S$0.07, a 2% decrease to our RNAV forecast.

In addition, the impact from QC extension charges are limited as fees at Urban Resort Condominium and The Interlace are estimated to be <2% of ASPs. The next project which will likely incur charges will be d’Leedon but similar to other projects, the impact to CAPL will be muted given its 35% stake and that 89% of total units are sold (QC extension charges are pro-rated on the proportion of total units unsold).

CAPL's existing list of projects launched have largely been sold and Singapore residential represents less than 8% of CAPL's total assets

26 November 2015


Figure 107: Current and future residential launches Figure 108: Key assumptions for Singapore residential

Residential project Stake Total unitsUnits

launched Units sold

% of total sold

% complet

edCurrent launchesThe Orchard Residences 32.7% 175 175 168 96 100%The Interlace 60% 1,040 1,040 900 87 100%d'Leedon 35% 1,715 1,715 1,525 89 100%Bedok Residences 100% 583 583 571 98 100%Urban Resort Condo. 100% 64 64 62 97 100%Sky Habitat 65% 509 509 377 74 97%Sky Vue 75% 694 530 512 74 71%Marine Blue 100% 124 50 31 25 52%Future launchesThe Nassim 100% 55 - - - 100%Cairnhill 100% 268 - - - n.a.Victoria Park Villas 100% 109 - - - 7% *

2015E 2016E 2017ESales (S$ mn) 827 737 746Sales volume (units) 236 368 462ASPs S$ psf ASPs S$ psfSky Habitat 1,380 Victoria Park 1,500Sky Vue 1,377 Cairnhill 2,600Marine Blue 1,800

*As at Dec-14. All others are as at Sep-15. Source: Company data Source: Credit Suisse estimates

Commercial: CapitaGreen contributions to kick-in

CapitaLand has a 50% directly held-stake in CapitaGreen, with another 40% held via CCT, which effective 2014 has been consolidated into the group under FRS110, and 10% held by Mitsubishi Estate Asia. With the TOP issued in Dec 2014 and committed leases at c. 88% of NLA or 616,600 sq ft as of 3Q15, we expect the revenue received from the leasing of the office space to start flowing through in 2015 onwards, and profit to kick in come 2016.

CapitaLand China (28% of total assets) CAPL's China exposure is mainly within Tier 1 and 2 cities

Given that c.46 of CAPL's total assets are attributed to China, there have been concerns by investors on the performance of this segment with China's economy slowing. We note that 55% of CAPL's asset exposure (by value) is in Tier 1 cities, where demand has overall been relatively more resilient which should help dampen again further slowdowns in China.

Figure 109: CAPL's China exposure mostly in T1 & 2 cities Figure 110: China residential focused on 5 key clusters

Tier 1: Beijing15%

Tier 1: Shanghai

31%

Other Tier 1 cities9%

Tier 239%

Tier 36%

China Property Value:

S$31.9 bn

Source: Company data as at 30 Sep 2015 Source: Company data

China residential

While there have been concerns over the sustainability of government housing policy support in China, CAPL's residential projects in China are focused in five main clusters (Figure 110), three of which comprise of Tier 1 cities and adjacent areas, where we expect demand to be relatively more resilient. Nevertheless, we estimate that a 20% drop in ASPs will only lower our RNAV by S$0.17 per share, or a 4% reduction to our RNAV.

55% of CAPL's asset exposure (by value) is in Tier 1 cities

A 20% drop in China residential ASPs will only lower our RNAV by 4%

26 November 2015


In 9M15, CAPL saw a c. 2x YoY increase in sale volumes and c. 3x YoY increase in sale value, driven by higher sales across all regions. We note that whilst sales volumes have been stronger, the impact on earnings will only be seen in earnings 2-3 years after the project launches as profit recognition in China is on a completion and handover basis.

Figure 111: China residential sales volume* Figure 112: China residential sales value*

759 2,249

1,177 1,306

1,631

1,891

1,054

2,764 1,909

1,646

1,057

2,422 2,312

1,902

1,673

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2012 2013 2014 9M151Q 2Q 3Q 4Q

(units)

6,611

7,688

4,961

6,492

796 2,746

1,302 2,183

2,340

2,068

1,371

5,660 2,517

1,695

1,594

3,750

3,566 2,161

3,288

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 9M151Q 2Q 3Q 4Q

(RMB mn)

9,219 8,670

7,555

11,593

* Data is on a 100% basis. Source: Company data * Data is on a 100% basis. Source: Company data

Raffles City portfolio Performances at both Raffles City (RC) Shanghai and Beijing remain robust with high occupancies close to 100%, and strong NPI growth of 14-18% YoY, returning a stabilised NPI yield on valuation of c.7-8% (we estimate NPI yield on cost of c.20+% and c.15+% for RC Shanghai and Beijing respectively).

We expect progressive leasing of stabilising assets to continue driving yield improvements; occupancies at RC Ningbo are now close to 100%, with RC Chengdu seeing steady progress on the leasing of its two office towers. RC Changning has recently commenced operations at its office tower 3, with 68% committed occupancy already achieved at the end of 3Q15.

Figure 113: Occupancies gradually improve at RC Chengdu and RC Ningbo

Figure 114: NPI growing but not yet stabilised at RC Chengdu and RC Ningbo

Occupancy (%) 2009 2010 2011 2012 2013 2014 3Q15Raffles City Shanghai

Retail 100% 100% 100% 100% 100% 100% 100%Office 93% 96% 100% 100% 98% 100% 100%

Raffles City BeijingRetail 94% 100% 100% 100% 100% 100% 100%Office 44% 99% 100% 98% 100% 98% 98%

Raffles City ChengduRetail 98% 98% 98% 100%Office Tower 1 4% 47% 57%Office Tower 2 42% 61% 79% 81%

Raffles City NingboRetail 82% 97% 94% 98%Office 21% 78% 96% 97%

Raffles City NingboOffice Tower 3 68%

Opening Total GFA CL Eff. YoY YoY Yield On ValnProperty year (sqm) Stake (%) FY14 FY13 Growth 9M15 9M14 Growth (100% basis)RC Shanghai 2003 ~139,000 30.7 503 440 14.3% 399 382 4.5%RC Beijing 2009 ~111,000 55.0 254 216 17.6% 194 196 -1.0% *RC Chengdu 2012 ~240,000 55.0 103 77 33.8% 106 78 35.9%RC Ningbo 2012 ~101,000 55.0 65 43 51.2% 52 55 -5.5% ^

NPI (100% basis)(RMB mn) (RMB mn)

Stabilised assets: ~7% to 8%

Non-stabilised assets: ~3%

Source: Company data, Credit Suisse estimates * Drop due to change in office tenants; ^ Drop due to incentives given to attract and retain quality tenants. Source: Company data

Further rental contribution will come with the phased opening of RC Changning, Hangzhou, Shenzhen Chongqing from 2015 to 2018:

Strong sales volumes in 9M15 will only be seen in earnings 2-3 years later

26 November 2015


■ 2015: RC Changning office tower 3.

■ 2016: RC Changning office tower 2, RC Hangzhou office and retail.

■ 2017: RC Changning office tower 1 and retail, RC Hangzhou hotel and serviced residence, RC Shenzhen office, retail and serviced residence.

■ 2018: RC Chongqing office, retail and serviced residence.

■ 2019: RC Chongqing Hotel.

Figure 115: Raffles City portfolio Actual/Exp

TOP date GFA (sq m) Effective stake Jun-15 valuation/est. development cost

for projects under development CL China CMA Total Rmb mn (total) Rmb mn (effective) Completed RC Shanghai* 2003 139,593 22.3% 8.4% 30.7% 6,950 2.134 RC Beijing* 2009 110,996 40.0% 15.0% 55.0% 3,909 2,150 RC Chengdu* 2012 240,514 40.0% 15.0% 55.0% 4,624 2,543 RC Ningbo* 2012 101,405 40.0% 15.0% 55.0% 2,190 1,205 Under development RC Changning^ 2015 255,327 25.6% 17.1% 42.8% 8,678 3,714 RC Hangzhou* 2016 296,336 40.0% 15.0% 55.0% 5,002 2,751 RC Shenzhen 2017 115,000 73.0% 73.0% 6,000 4,380 RC Chongqing 2018 817,000 31.25% 31.25% 62.5% 21,403 13,377

* Part of RC China Fund; ^ Partly operational. TOP date refers to expected year of opening of the first component in the particular RC development. Source: Company data, Credit Suisse estimates

CapitaMalls Asia (30% of total assets) CapitaMalls Asia (CMA), driven by its exposure to Singapore and China, continues to provide a strong base to CAPL’s recurring income. As shown in Figure 116, CMA’s Singapore assets continue to provide stable contribution despite concerns over the retail market softening. Growth, however, was driven by improvements in China’s operations, as 9M15 growth in tenant sales and shopper traffic by 3.7% YoY and 9.2% YoY respectively has led to NPI growing 9.2% YoY.

We expect earnings growth at CMA to be driven by yield improvements at existing malls and the opening of four new malls in China in 2016. While 88 of CAPL’s 105 malls are already operational, over 20% of CMA China’s malls opened from 2011 to 2014 and have further upside potential once these assets mature.

Figure 116: Geographical split of property value and mall operations As at 30 Sep 2015 NPI (mn) 9M15 9M15 vs. 9M14 (%) Property

value (S$ bn) % of total

Local currency

9M15 9M14 % YoY NPI Yield on valuation (%)

Occupancy rate (%)

Shopper traffic

Tenant sales (psf) (%)

Singapore 16.6 41 SGD 230 223 3.0 5.7 96.8 +6.3 +4.1 China 21.2 52 RMB 933 854 9.2 5.6 93.4 +3.7 +9.2 Malaysia 1.7 4 RM 107 100 7.2 6.6 97.2 -13.5 n.a. Japan 0.6 2 JPY 2,127 2,028 4.9 5.6 98.9 +8.7 +3.3 India 0.4 1 INR 110 23 375.3 5.6 90.0 +2.3 +8.0

Property value, NPI yields, occupancy rate, shopper traffic and tenant sales are on a 100% basis, while NPI is based on CAPL’s effective stake. Source: Company data

We expect earnings growth at CMA to be driven by yield improvements at existing malls and the opening of 4 new malls in China in 2016

26 November 2015


Figure 117: Operational summary for CMA’s key markets Figure 118: 16 malls expected to be opened in 2016 and beyond, largely in China

Singapore China Singapore ChinaTenant sales 0.2% 11.6% 1.1% 9.5%Shopper traffic (psm) 1.6% 9.3% 6.3% 3.7%Same-mall NPI growth 2.5% 19.9% 1.8% 8.8%Committed occupancy rate 98.8% 94.8% 96.8% 93.4%NPI yield on valuation 5.7% 5.5% 5.7% 5.6%

FY14 vs. FY13 9M15 vs. 9M14

OperationalTarget to be opened in 2015

Target to be opened in 2016 onwards

Total

Singapore 19 - 1 20 China 54 1 9 64 Malaysia 6 - 1 6 Japan 5 - - 6 India 4 - 5 9 Total 88 3 16 105

Note: On a same-mall basis; average NPI based on valuations as at 31 Dec 2014. Source: Company data, Credit Suisse estimates

* Tianjin Int’l Trade Centre is held under CL China. Source: Company data

China retail

In 2014, malls opened in 2010-12 saw 21-51% NPI growth, and we expect CMA China’s growth to continue to be underpinned by positive rent reversions from past projects. CapitaMall 1818 opened on 17 Sep 2015 with a committed occupancy of c. 81%, while CapitaMall SKY+ is slated to open in December 2015. Coupled with four new malls in China which are expected to open in 2016, we expect earnings growth at CMA China to remain healthy.

Figure 119: CMA China—new operational NLA by mall completions

Figure 120: CMA China—in 2014, malls opened in 2010-12 saw 21-51% NPI growth

9

93

151

30

90 10688

195168

45 45

121

312

89 93

0

50

100

150

200

250

300

350

'03 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15E '16E '17E '18E

'000 sqm'000 sqm'000 sqm'000 sqm

Yield improvement

Tenant sales (psm) growth

FY14 FY13 FY14 vs. FY13 FY14 vs. FY132005 4 1,218 58.1% 5.5 5.5 -0.1% 2.5%2006 8 3,004 44.1% 11 9.8 12.3% 7.4%2007 2 1,839 29.7% 10.8 9.9 8.6% 10.9%2008 5 2,965 32.4% 8.4 7.7 8.1% 10.6%2009 7 3,600 26.3% 9.9 8.7 14.4% 1.9%2010 5 2,278 41.6% 5.5 4.6 21.2% 18.2%2011 3 11,475 65.8% 5.3 3.9 35.8% 15.7%2012 7 8,426 30.1% 4.7 3.1 51.1% 13.7%2013 1 560 50.0% 4.2 - 0.0% 0.0%

Gross revenue on costChina portfolio 7.5% 12.1%

Effective stake (%)

NPI Yield on cost (%) (100% basis)

9M15 NPI yield on cost

Year of opening No. of

malls

Cost (100% basis, RMB

mn)

* Excluding revals and portfolio gains Source: Company data, Credit Suisse estimates


Singapore retail

Despite concerns over the challenging retail market in Singapore, CMA’s Singapore portfolio saw decent 9M15 tenant sales and shopper traffic growth of +6.3% YoY and 4.1% YoY, respectively. CAPL recently divested Bedok Mall to CMT for S$783 mn or a cap rate of 5.1% (tighter than all of CMT’s other retail assets), but we understand that its two other directly held malls, Westgate and The Star Vista, still have room for rents to stabilise and may not be ripe for divestment as yet. Overall, the completion of AEIs across several of CMT's malls, including Tampines (including the creation of 21.5k sq ft NLA), IMM (continued repositioning as an outlet mall) and Bukit Panjang Plaza (~12.5k sq ft GFA), and the commencement of tenant operations at Clarke Quay should help support growth into 2016 and 2017.

Completion of AEIs across several of CMT's malls should help support growth into 2016 and 2017

26 November 2015


The Ascott (15% of total assets) About 24% of Ascott’s total asset value by effective stake is currently under development, at c. S$410mn or 14,815 units. These pipeline assets are expected to add an additional S$73.4 mn in fee income when operational (+66% vs. S$112 mn in fee income in 9M15).

As at 3Q15, Ascott has 41,441 units under management, of which c.58% are under management contracts. Management has been active in securing new management contracts and expanding its portfolio globally. In particular, Ascott and Qatar Investment Authority announced a US$600 mn global serviced residence JV in July 2015, of which US$137 mn has already been invested in its maiden assets in Paris and Tokyo.

As CAPL targets to reach 80,000 units under management by 2020, the additional contracts signed coupled with asset injections of mature assets into its REIT vehicle should help CAPL to grow its fee-based income and enhance returns.

Figure 121: Ascott split of operational assets* and under development – ~S$410 mn of assets under development

Figure 122: Ascott breakdown of total units by geography

Operational76%

Under development

24%

Total assets (effective)S$1.7 bn Operational

64%

Under development

36%Total units

41,441

0

2,500

5,000

7,500

10,000

12,500

15,000

Singapore SEA & AU(ex SG)

China North Asia(ex CH)

Europe USA GulfRegion &

IndiaOperational Under development

units

* Asset value based on effective stake. Source: Company data Source: Company data

24% of Ascott’s total asset value by effective stake is currently under development

26 November 2015


Could headline ROE reach 8-12% in 2016E? In 2013, management aimed to achieve ROEs in excess of 8% in the next 3-5 years; hence we think 2016 is an important milestone year to assess CAPL’s progress in achieving its medium term ROE target. We forecast core PATMI of S$920 mn in 2016E, which would imply an additional c.S$530 mn in revaluation and portfolio gains required for CAPL to achieve an ROE of 8%.

A potential divestment of CapitaGreen to CCT or revaluation gains on S$6.9 bn of projects under development (100% basis) expected to complete in 2016 could support the stated ROE target. Despite the subjectivity surrounding revaluation gains, we think there could be downside risks on: (1) potential impairments/provisions required, (2) macro headwinds in China weighing on operational performance and (3) slower pre-sales resulting in weaker than expected earnings contribution (residential/strata properties still constitute 30-40% of operating EBIT).

PATMI of S$1,450 mn required to reach 8% ROE target in 2016

Annualising headline 9M15 PATMI of S$818 mn gives a headline ROE of 6.4%. However, we believe 2015 ROEs would likely be above 7% (2014 ROE of 7.1%) given that fair value adjustments are typically taken every six months, with revaluation gains likely to boost headline ROE in 4Q15E.

We forecast core PATMI of S$920 mn in 2016E, which would imply an additional c. S$530 mn in revaluation and portfolio gains required for CAPL to achieve an ROE of 8%. We expect core ROEs however to continue trending up gradually from 2015E to 2017E, which we believe to be a relevant key metric to assess management progress towards driving higher returns to its business.

Figure 123: Core PATMI, revaluations and one-off portfolio gains/losses

633 698 710

352 369534

705 725920

1,049

627 355

716

705 561 316

456

672

530 456

5.9%5.2% 5.4%

2.4% 2.4%3.3%

4.2% 4.2%

5.1%5.6%

-4%

-2%

0%

2%

4%

6%

8%

0

200

400

600

800

1,000

1,200

1,400

1,600

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Core PATMI Revaluation & one-off portfolio gain/loss Core ROE (RHS)

(S$ mn)

Required revaluations to hit 8 ROE% Source: Company data, Credit Suisse estimates

Pipeline of assets to realise divestment and revaluation gains

While we do not expect retail malls Westgate and The Star Vista to be divested to CMT soon as these assets have further room to stabilise, CapitaGreen could be a potential candidate for divestment to CCT. Recall, CCT has a three-year call option to acquire the 60% it does not own in CapitaGreen upon TOP of the building, at market valuation, provided the market valuation must give at least a compounded return of 6.3% p.a. (CAPL's estimated cost of capital) before the call option can be exercised.

We think there could be downside risks to ROE on: (1) potential impairments, (2) macro headwinds in China weighing on operational performance and (3) slower residential pre-sales

26 November 2015


Assuming costs remains at S$1.4 bn, valuations are compounded at 6.3% p.a. from mid-2013, and that CCT buys CapitaGreen towards the end of 2016, the implied base price must be at least S$1.74 bn. This would imply a valuation of about S$2,500 psf of NLA. As a result, based on the current valuation of CapitaGreen at S$1.56 bn, we estimate that CAPL could realise a gain on divestment of c. S$100 mn.

Projects with a total project development value of S$6.9 bn (on a 100% basis) are expected to complete in 2016. Depending on the effective stake of the individual projects, along with operational statistics on completion such as occupancies and rent levels, CAPL could see sizeable development gains upon completion of the projects under development.

Figure 124: Expected completion dates for assets (by total project development value)*

Figure 125: Expected completion dates by geography (by total project development value)*

0.2 0.40.8

1.6

0.41.5

4.9

2.1

2.2

0

1

2

3

4

5

6

7

2015 2016 2017 2018Serv Resi Malls Commercial/Integrated Devts

1.0

6.9

2.5

3.7

S$ bn

0.41.5

0.8

6.5

2.1

2.2

0.2

0.4

0

1

2

3

4

5

6

7

2015 2016 2017 2018Singapore China Europe Other Asia

1.0

6.9

2.5

3.7

S$ bn

* 100% basis. Source: Company data, Credit Suisse estimates * 100% basis. Source: Company data, Credit Suisse estimates

Key risks Execution is key: Impairment losses, provisions could tamper with revaluation gains

The corollary to the potential for development gains is the risk of impairment losses and provisions on both investment and development properties, especially given the sizeable pipeline of projects completions.

Impairments in the past five years have ranged from S$51 mn to S$165 mn, and could pose a drag to ROEs. Most recently, CAPL recognised S$71 mn of impairment losses in 1H15, of which c. S$63 mn was on the International Trade Centre in Tianjin. Depending on policy risk and the overall macro environment in China, actual operating earnings may also be impacted, in addition to the lower revaluation gains achieved upon project completion.

Oversupply in Chongqing?

While Raffles City Chongqing is only expected to be completed progressively from 2018, we thought it worth highlighting the risk of oversupply, given the significant size of the project. Raffles City Chongqing is the largest Raffles City project in CapitaLand’s portfolio at a total GFA of 817,000 sq m (vs an average of 193,000 sq m for the other seven RC projects) and CapitaLand’s single largest investment in China to date. CAPL currently has a 62.5% effective stake in the project, with total project development expenditure targeted at Rmb21.4 bn.

Whilst Chongqing is seeing healthy economic growth, (GDP growth of 10.9% YoY in 2014 vs. China's overall growth of 7.4% YoY), we highlight that RC Chongqing may be impacted by oversupply, particularly within the office sub-segment which could lead to lower than expected occupancy and rents. (see Figure 101 below).

Allowance for foreseeable losses and impairments in the past five years have ranged from S$51 mn to S$165 mn, and could pose a drag to ROEs

26 November 2015


Figure 126: Raffles City Chongqing relative to current supply in Chongqing Subsector Current total

stock (sqm)# Current vacancy

rate# RC Chongqing

GFA (sqm) RC Chongqing

as a % of supply Office 1,757,000 44.4% 174,000 9.9% High-end resi 76,200* n.a. 2,207^* 2.9% Prime retail 3,657,200 11.3% 222,000 6.1% - Shopping mall 3,220,800 12.8% 222,000 6.9%

# JLL data as at 1Q15; * No of units; ^ Assuming average unit size is 150 sq m. Source: JLL, Ying Li, company data, Credit Suisse estimates.

Figure 127: Historical impairment and provisions taken Figure 128: 9M15 operating EBIT by asset classes

5951

89

165 161

71

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 1H15

(S$mn)

Residential & Strata sales

35%

Commercial & Integrated

developments22%

Shopping Malls31%

Serviced Residences

12%

Others0%


Residential and strata sales still contribute 35% to operating EBIT

CAPL has optimised its asset mix towards having a majority of assets contributing to recurring income. However, around 35% of operating EBIT in 9M15 (2014: 38%) was still contributed by residential and strata sales. As such, slower pre-sales in China in 2013 and 2014 could result in lower-than-expected earnings contribution in 2016, given that earnings are only recognised upon completion and handing over of units sold.

In Singapore, we understand that CAPL's Sky Vue project (26% of units unsold) was relaunched recently with discounts of up to 10%. Further price cuts and a weaker-than-expected take-up of unsold units at launched projects (758 units unsold as at 30 Sep 2015) and units to be launched (432 units) could also result in a further drag on operating earnings.

Slower pre-sales in China in 2013 and 2014 could result in lower-than-expected earnings contribution in 2016

26 November 2015


Figure 129: Singapore residential sales value Figure 130: China residential sales value

88

1275

87 197379

368

253 106

166

560

104 109

677

240

117

0

500

1,000

1,500

2,000

2,500

3,000

2012 2013 2014 9M15

1Q 2Q 3Q 4Q

(S$ '000)

1,310

2,443

561 412

796 2,746

1,302 2,183

2,340

2,068

1,371

5,660 2,517

1,695

1,594

3,750

3,566 2,161

3,288

0

2,000

4,000

6,000

8,000

10,000

12,000

2012 2013 2014 9M151Q 2Q 3Q 4Q

(RMB mn)

9,219 8,670

7,555

11,593


26 November 2015


Valuations undemanding, but not compelling We believe that CAPL’s limited residential exposure at 20% of our GAV estimates mitigates concerns over the slowdown in the residential markets in Singapore and China. In the medium to long term, we believe that a continued recovery in core earnings and achievement of management ROE targets could lead to CAPL’s share price recovery.

In the near term however, we expect core net profit growth to be muted at only 3% YoY, from S$705 mn in 2014 to S$725 mn in 2015E (excluding fair value gains from change in use of development projects of S$171mn).

Figure 131: CAPL GAV estimate by segment Figure 132: Total asset breakdown as at 30 Sep 2015

CL China28%

CL Singapore12%

CMA40%

Ascott9%

Management fee5%


~5% residential

Trading Properties

25%

Commercial & Integrated Development

s 35%

Malls 23%

Serviced Residence

16%

Others 1%

Total assetsS$46.7 bn

Note: For 2015E. Source: Company data, Credit Suisse estimates Source: Company data

As such, while valuations for CAPL are undemanding at 0.76x P/B (vs. historical average of 1x) and 26% discount to RNAV, we think there could be limited upside from current levels given the uncertainty around near-term earnings and the achievement of management's ROE targets in 2016E, and execution risk on the sizeable S$6.9 bn (100% basis) pipeline of projects due for completion in 2016E.

Our target price of S$3.50 is based on a 16% discount (historical average) to our RNAV of S$4.21, giving us upside of 12% from the current price of S$3.13.

Figure 133: CAPL P/B Figure 134: CAPL—premium/(discount) to RNAV

0.761.011.45

0.56

0.0

0.5

1.0

1.5

2.0

2.5

Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15

CapitaLand - P/B Average - 1.01 ±1 std. dev.

P/B

-58.4-44.9

-26.0-15.8

10.8

-42.5

-80

-60

-40

-20

0

20

40

60

80


(%)

CAPL Prem/(disc) to RNAV Mean - (15.8)% ± 1 std


We expect core net profit growth to be muted at only 3% YoY, from S$705 mn in 2014 to S$725 mn in 2015E

While valuations are undemanding at 0.76x P/B and 26% discount to RNAV, we think there could be limited upside near-term

26 November 2015


CapitaLand RNAV Figure 135: CAPL RNAV table

TP (S$/sh) % stake No. shares (mn) GAV (S$ mn) % S$/sh

CapitaLand Singapore 4,832 - Residential 2,106 5% 0.45 - Commercial & Mixed Development 2,725 7% 0.58

- CCT 1.43 31.7% 2,945 1,692 4% 0.36 - CapitaGreen 50.0% 1,033

CapitaLand China 11,070 - Residential 5,969 15% 1.27 - Commercial & Mixed Development 5,101 13% 1.09

CapitaMalls Asia 15,904 - Singapore 5,272

-- CMT 2.30 27.6% 3,462 2,199 6% 0.47 -- Non-CMT 3,072 8% 0.66

ION Orchard 50% 1,573 The Star Vista 100% 307 Westgate 50% 549 Jewel 49% 643

- China 9,099 -- CRCT 1.42 25.6% 828 300 1% 0.06 -- Non-CRCT (inc stake in RCs) 8,799 23% 1.88

- Malaysia 819 -- CMMT 0.45 36.1% 1,779 437 1% 0.09 -- Non-CMMT 382 1% 0.08

Queensbay Mall 100% 309 Melawati Mall 50% 72

- Japan 598 2% 0.13 - India 116 0% 0.02

Ascott 3,397 - Non-listed 1,700 4% 0.36 - ART 1.37 45.9% 1,535 1,697 4% 0.36

Management fee business FY15E net profit at P/E of 15x 1,901 5% 0.41 Others 2,257 6% 0.48 Total GAV 39,360 100% 8.40 Less: Net Debt (14,632) Less: Other liabilities (4,987) RNAV 19,499 Number of shares 4,685 RNAV per share (S$) 4.21 Discount 16% Target price (S$) 3.50

CCT, CMT and ART based on CS target price, while CRCT and CMMT based on market price as at 24 Nov 2015 Source: Company data, Credit Suisse estimates.

26 November 2015


Appendix I: Summary of financials Figure 136: Summary of CAPL financials S$ mn, FYE Dec 2013 2014 2015E 2016E 2017E Income statement Revenue 3,977 3,925 4,011 3,780 4,154

CL Singapore 1,019 1,233 1,102 1,016 1,032 CL China 899 636 1,322 1,079 1,331 CMA 528 1,177 676 731 798 Ascott 413 683 791 832 873 Others 1,120 195 120 120 120

EBIT 751 1,467 1,383 1,464 1,586 CL Singapore 311 611 426 425 425 CL China 140 171 287 407 371 CMA 273 440 329 279 425 Ascott 13 249 280 293 306 Others 13 (4) 60 60 60

Finance costs (444) (439) (512) (520) (527) Share of results of associates & JVs 1,047 970 1,079 1,044 1,096 Profit before taxation 1,354 1,997 1,950 1,989 2,155 Taxation (169) (267) (244) (249) (269) MI (335) (599) (421) (425) (474) PATMI 850 1,161 1,285 1,315 1,411 One-offs, revaluations, other non-recurring (316) (456) (559) (395) (362) Core PATMI 534 705 725 920 1,049 Balance Sheet Property, plant and equipment 1,079 1,047 1,104 1,157 1,208 Intangible assets 471 463 463 463 463 Investment properties 4,935 17,149 17,793 18,532 19,310 Associates & JVs 14,276 12,781 13,860 14,904 16,000 Deferred tax assets 73 - - - - Other non-current assets 657 1,093 715 715 715 Development properties for sale and stocks 7,382 7,674 7,842 6,890 7,072 Trade and other receivables 1,164 963 985 928 1,020 Other current assets 197 194 94 94 94 Cash and cash equivalents 5,920 2,749 2,021 2,217 1,663 Total assets 36,155 44,113 44,876 45,901 47,546 Trade and other payables 2,680 3,070 3,137 2,956 3,249 Short term debt 1,194 3,469 3,300 3,300 3,300 Current tax payable 473 463 463 463 463 Long term debt 11,369 12,517 12,208 12,208 12,208 Deferred tax liabilities 611 - - - - Other non-current liabilities 517 1,386 1,386 1,386 1,386 Total liabilities 16,844 20,905 20,494 20,313 20,606 Shareholders' equity 16,068 16,758 17,360 17,991 18,719 Minority interest 3,243 6,451 7,022 7,597 8,221 Total equity 19,311 23,209 24,382 25,588 26,939 Ratios ROE (%) 5.5 7.1 7.5 7.4 7.7 Core ROE (%) 3.4 4.3 4.3 5.2 5.7 P/B (x) 0.81 0.78 0.75 0.73 0.70 P/E (x) 15.4 11.3 10.2 10.0 9.3 Core P/E (x) 24.6 18.6 18.1 14.3 12.5 Dividend yield (%) 2.6 2.9 2.9 2.9 2.9 * FRS110 implementation. Source: Company data, Credit Suisse estimates

26 November 2015


Appendix II: Company description Figure 137: CapitaLand's business structure


Figure 138: Revenue by SBU Figure 139: EBIT by SBU

951 1,025 1,233 924

434899 636 984354

5281,177

504405

413

683

5461,158

1,113

195

64

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012 2013 2014 9M15CL Singapore CL China CMA Ascott Others

(S$ mn)

512 479803

420

326 388

409

459

676 744

945

566

182 116

297

227

321 72

-18

43

-500

0

500

1,000

1,500

2,000

2,500

2012 2013 2014 9M15

CL Singapore CL China CMA Ascott Others

(S$ mn)


26 November 2015


Figure 140: Revenue by geography Figure 141: EBIT by geography

1,170 1,3972,145

1,183

588

1,070

865

1,202140

223

559

3611,182

1,066222

222 356

276

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012 2013 2014 9M15Singapore China (incl. HK) Other AsiaAustralia Europe & others

(S$ mn)

8941138 1285

744

658

783751

640

80

202299

211

36520

135102

120

0

500

1,000

1,500

2,000

2,500

2012 2013 2014 9M15Singapore China (incl. HK) Other AsiaAustralia Europe & others

(S$ mn)


26 November 2015


Appendix III: List of major investments since 2010 Figure 142: List of some of the more meaningful investments made since 2010 Year Project Business Unit Project type Effective

Investment amount (S$ mn)

Comments

2015 Stake increase in CL Township CLC Residential 240 Acquired remaining 60% stake 2015 Tujia.com & JV Ascott Serviced Residence 122 2015 JV with QIA (serviced residence fund) Ascott Serviced Residence 405 US$600mn fund (CAPL own 50%) 2015 Acquisition of Vivit Mall CMA Shopping Mall 80 2014 Integrated development in Indonesia CLS Mixed Development 110 2014 Ningbo residential site CLC Residential 232 Land cost 2014 Chengdu residential sites CLC Residential 155 Land cost (CAPL owns 60%) 2014 CMA privatisation CMA 3,178 Raise stake from 65% to 100% 2013 CapitaMall Grand Canyon CRCT Retail 368 2013 Hanzhonglu Site, Shanghai CLC Mixed Development 398 Land cost (CAPL owns 70%) 2013 Danga Bay Project CLS Mixed Development 165 Land cost (CAPL owns 51%) 2013 Coronation Road Site CLS Residential 366 Land cost 2013 Project Jewel CMA Retail 720 Total PDE (CMA owns 49%) 2013 CapitaMall SKY+ CMA Retail 534 Total PDE 2012 Tiangongyuan site, Beijing CMA Retail 469 Total PDE 2012 Twenty Anson CCT Office 430 2012 Olinas Mall, Tokyo CMA Retail 367 2012 Somerset Grand Cairnhill CLS Serviced Residence 359 2012 CapitaMall Xinduxin CMA Retail 295 Total PDE 2012 3 Malls from CapitaMall Japan Fund CMA Retail 217 2012 CapitaMall 1818 CMA Retail 102 2012 The Cavendish London Ascott Serviced Residence 228 2012 Bishan Street 14 CLS Residential 311 Land cost (CAPL owns 75%) 2012 Wuhan Site CMA Retail 379 Total PDE 2011 Raffles City Chongqing CLS, CMA Mixed development 545 Total PDE (CAPL owns 50%) 2011 Westgate CMA, CMT, CLS Office, Retail 2,688 Total PDE 2011 CapitaGreen CLS, CCT Office 1,178 Total PDE 2011 50% stake in Minhang & Hongkou CMA Retail 878 Added in each to reach 100% 2011 West Jinji Lake CMA Retail 950 CAPL owns 50% 2011 Bishan Central site CLS Residential 637 Land cost (CAPL owns 65%) 2011 Surbana CL Investment 358 CAPL owns 40% 2011 Iluma CMT Retail 300 2011 Hangzhou Site CLC Residential 210 Land cost 2011 Ascott Arc de Triomphe Paris Ascott Serviced Residence 150 2010 Raffles City Shenzhen CLC Mixed Development 729 CAPL owned 58.3% at the time 2010 Tianfu integrated development CMA Mixed Development 493 Total PDE 2010 Luwan integrated development CMA Mixed Development 3,100 Total PDE (CAPL owns 66%) 2010 OODL (OOIL property arm) CLC 917 2010 Site at Bedok Town Centre CLS, CMA Mixed Development 110 Total PDE

Source: Company data

26 November 2015


Companies Mentioned (Price as of 24-Nov-2015) Ascendas REIT (AEMN.SI, S$2.32) Ascott Residence Trust (ASRT.SI, S$1.19) CDL Hospitality Trusts (CDLT.SI, S$1.32) CapitaLand (CRCT.SI, S$1.415) CapitaLand (CATL.SI, S$3.13, NEUTRAL, TP S$3.5) CapitaMalls Malaysia Trust (CAMA.KL, RM1.41) Capitaland Commercial Trust (CACT.SI, S$1.31) Capitaland Mall Trust (CMLT.SI, S$1.885) City Developments (CTDM.SI, S$7.52, OUTPERFORM, TP S$12.0) Frasers Centrepoint Trust (FCRT.SI, S$1.875) Frasers Centrept (FRCT.SI, S$1.65) GuocoLand (GUOC.SI, S$1.85) Ho Bee Land (HBEE.SI, S$2.01) Keppel DC REIT (KEPE.SI, S$1.05) Keppel REIT (KASA.SI, S$0.94) Mapletree Commercial Trust (MACT.SI, S$1.28) Mapletree Industrial Trust (MAPI.SI, S$1.53) Mapletree Logistics Trust (MAPL.SI, S$1.02) Millennium & Copthorne (MLC.L, 469.0p) OUE Hospitality Trust (OUER.SI, S$0.795) OUE Ltd (OVES.SI, S$1.79) SPH REIT (SPHR.SI, S$0.925) Suntec REIT (SUNT.SI, S$1.55) UOL (UTOS.SI, S$6.16) Wing Tai Holdings (WTHS.SI, S$1.715)

Disclosure Appendix

Important Global Disclosures I, Louis Chua, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for CapitaLand (CATL.SI)

CATL.SI Closing Price Target Price Date (S$) (S$) Rating 03-Jan-13 3.84 3.96 O 17-Jan-13 3.86 4.50 21-Feb-13 3.90 4.53 19-Sep-13 3.24 R 11-Oct-13 3.16 4.53 O 20-Feb-14 2.86 4.46 14-Apr-14 2.92 R 10-Jun-14 3.21 4.46 O 29-Jan-15 3.54 4.70 09-Apr-15 3.60 4.70 * * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price CATL.SI

1- Jan- 13 1- Jan- 14 1- Jan- 152

3

4

5

O U T PERFO RM

REST RIC T ED

3-Year Price and Rating History for City Developments (CTDM.SI)

CTDM.SI Closing Price Target Price Date (S$) (S$) Rating 17-Jan-13 11.46 13.33 O 28-Feb-13 11.08 13.49 27-Feb-14 9.27 12.02 14-Aug-14 9.70 12.20 16-Feb-15 10.22 12.25 09-Apr-15 10.68 12.25 * * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price CTDM.SI

1- Jan- 13 1- Jul- 13 1- Jan- 14 1- Jul- 14 1- Jan- 15 1- Jul- 157

9

11

13

15

O U T PERFO RM

26 November 2015


3-Year Price and Rating History for Keppel DC REIT (KEPE.SI)

KEPE.SI Closing Price Target Price Date (S$) (S$) Rating 13-Jan-15 0.97 1.10 O 09-Apr-15 1.02 1.10 * 28-May-15 1.07 1.16 * 28-Oct-15 1.06 1.17 * Asterisk signifies initiation or assumption of coverage.

Target Price Closing Price KEPE.SI

1- Mar- 15 1- May- 15 1- Jul- 15 1- Sep- 15 1- Nov- 15

1.00

1.05

1.10

1.15

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

As of December 10, 2012 Analysts’ stock rating are defined as follows: Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months. Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months. Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months. *Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, the expected total return (ETR) calculation includes 12-month rolling dividend yield. An Outperform rating is assigned where an ETR is greater than or equal to 7.5%; Underperform where an ETR less than or equal to 5%. A Neutral may be assigned where the ETR is between -5% and 15%. The overlapping rating range allows analysts to assign a rating that puts ETR in the context of associated risks. Prior to 18 May 2015, ETR ranges for Outperform and Underperform ratings did not overlap with Neutral thresholds between 15% and 7.5%, which was in operation from 7 July 2011. Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation: Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months. Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months. Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months. *An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%) Outperform/Buy* 60% (33% banking clients) Neutral/Hold* 27% (33% banking clients) Underperform/Sell* 12% (25% banking clients) Restricted 1% *For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, and Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdings, and other individual factors.

26 November 2015


Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein. Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research-and-analytics/disclaimer/managing_conflicts_disclaimer.html Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for CapitaLand (CATL.SI)

Method: Our target price of S$3.50 for CapitaLand is pegged at a 16% discount to our reappraised net asset value (RNAV) per share of S$4.21. The RNAV is calculated based on CapitaLand's portfolio of assets. For residential properties, we estimate net present value (NPV) of net profits from its residential properties based on our assumed take-up schedule and selling prices over the next ten years using a 8% and 12% discount rate for Singapore and China respectively. For the subsidiaries we cover, we have used the respective target prices for our RNAV.

Risk: The main risk to our target price of S$3.50 for CapitaLand is if the real estate markets in the countries in which the company is present do not perform as forecast. This would lead to a downward revision to our NAV assumptions and thereafter target price revisions.

Price Target: (12 months) for City Developments (CTDM.SI)

Method: Our target price of S$12.00 for City Developments is pegged at 6.8% discount to our reappraised net asset value (RNAV) of S$12.85. The RNAV is calculated based on CDL's portfolio of assets in which a 3-5.5% capitalisation rate is applied for its commercial properties, 6-7% capitalisation rate for industrial properties (if any). For residential properties, we estimate net present value (NPV) of net profits from its residential properties based on our assumed take-up schedule and selling prices over the next ten years using an 8% to 12% discount rate for Singapore and Overseas respectively.

Risk: The main risk to our target price of S$12.00 for City Developments is if the real estate market in the countries which the company is presently in do not perform as forecasted and hence would lead to downward revisions to our RNAV assumptions and target price thereafter.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names The subject company (CTDM.SI, CATL.SI, KEPE.SI) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (CATL.SI, KEPE.SI) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (KEPE.SI) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (CATL.SI, KEPE.SI) within the past 12 months Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (CTDM.SI, CATL.SI, KEPE.SI) within the next 3 months. Credit Suisse has a material conflict of interest with the subject company (CATL.SI) . Credit Suisse (Singapore) Limited is acting as a joint financial advisor to Sound Investment Holdings Pte Limited, a wholly-owned subsidiary of CapitaLand Limited, regarding its proposed voluntary conditional cash offer for the shares in CapitaMalls Asia Limited.

Important Regional Disclosures Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report. The analyst(s) involved in the preparation of this report may participate in events hosted by the subject company, including site visits. Credit Suisse does not accept or permit analysts to accept payment or reimbursement for travel expenses associated with these events. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit https://www.credit-suisse.com/sites/disclaimers-ib/en/canada-research-policy.html. Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (CATL.SI, KEPE.SI) within the past 3 years.

26 November 2015


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26 November 2015


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