QUESTION
Section A – 2000 words.
1. Analyse the performance of your chosen company using relevant financial and non-financial ratios (5 years). Your analysis should include profit ratios, efficiency, liquidity and other ratios that you consider relevant.
Section B – 500 words
1. Critically evaluate the company’s corporate governance compliance and its impact on the brand and reputation as reported in the press (print, online and social media)
2. Discuss the proposed medium term financial strategies for your selected company to become a SGX company or for your company to become dominant in the industry / sector.
Company :: CAPITALAND LIMITED
ANSWER
CAPITAL AND LIMITED
Introduction
CapitaLand Limited is one of Asia’s biggest real estate organizations. Headquartered and recorded in Singapore, it is a proprietor and leader of a worldwide portfolio involving incorporated developments, shopping centres, lodging, workplaces, homes, Real estate investment trusts (REITs) and assets. Present crosswise over in excess of 160 urban communities in more than 30 nations, the Group centres around Singapore and China as centre markets while it keeps on growing in business sectors, for example, Indonesia and Vietnam. The organization likewise has one of the biggest ventures the board organizations in Asia and a stable of five REITs recorded in Singapore and Malaysia – CapitaLand Mall Trust, CapitaLand Commercial Trust, Ascott Residence Trust, CapitaLand Retail China Trust and CapitaLand Malaysia Mall Trust. On 13 January 2019, it reported that it will secure Ascendas-Singbridge, a land gathering firm, from Temasek Holdings in an SGD 11 billion arrangement, contingent upon to investors’ endorsement.
The competitive company chosen is Frasers Property Limited which is also a real estate company based out of Singapore. The company has four business units which are Hospitality, Singapore, Europe and rest of Asia and Australia. Much like CapitaLand Limited the company also operates in approximately 80 cities all over Asia.
Horizontal and Vertical Analysis
| Million SGD | FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 |
| Revenue | 3,924.6 | 4,761.9 | 5,252.3 | 4,609.8 | 5,602.4 |
| Profits | 1,759.7 | 1,495.3 | 1,504.3 | 2,326.0 | 2,849.8 |
| Assets | 44,113.5 | 47,052.6 | 45,740.8 | 61,445.7 | 64,647.6 |
| GDP Growth | 3.9% | 2.2% | 2.2% | 3.6% |
The GDP of Singapore has been fluctuating from a 2% growth to 4% growth for the last 5 years. At the same time the company has seen a 9% and 13% growth in its sales and income in the same period when the CAGR was calculated. The assets of the company have seen a similar rise at a 10% CAGR. The company is performing much better than the Singapore economy. The more important aspect is that the growth rate itself has not slowed down pointing to good results in the future.
Profits
The Industry
Singapore’s administration is attempting to keep its real estate industry aggressive in an inexorably innovation-driven condition. Technological change has disturbed businesses around the globe, and it’s affecting the scope of property industry. The impacts are far-going, from the manner in which individuals purchase and lease homes to the troublesome power of collaborating players combined with tech monsters in China jumping into real estate. With its new order, Singapore is expecting to keep pace by empowering progressively open establishments and organizations to embrace new advances and incorporate them into their industry. Land firms from the island country have begun equipping.
Financial Ratios
CapitaLand Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Gross Profit Ratio | 35.21% | 30.98% | 30.42% | 39.87% | 48.00% |
| Net Profit Ratio | 29.58% | 22.38% | 22.66% | 33.64% | 31.46% |
| Expense Ratio | 0.94% | 0.95% | 0.87% | 0.73% | 1.00% |
| Return on Assets | 3.61% | 2.94% | 3.48% | 3.04% | 4.14% |
| Operating Ratio | 10.57% | 9.43% | 7.57% | 9.73% | 11.59% |
Frasers Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Gross Profit Ratio | 35.02% | 30.38% | 30.02% | 29.40% | 32.94% |
| Net Profit Ratio | 22.73% | 21.66% | 17.36% | 15.41% | 17.60% |
| Expense Ratio | 0.68% | 1.05% | 1.29% | 1.15% | 1.06% |
| Return on Assets | 3.19% | 4.39% | 3.17% | 3.82% | 3.69% |
| Operating Ratio | 6.60% | 6.81% | 9.08% | 7.72% | 7.94% |
The gross profit ratio and the net profit ratio has increased from what it was five years ago for CapitaLand Limited. 2015 was an exceptional year when both the ratios saw a steep dip and it took the company almost 2 year to recover to the ratios of 2014. Currently it is performing better than 2014. When compared with its competitors, the company is performing far better than Frasers in terms of both net and gross profit ratios.
The expense ratio however has seen a rise and is currently comparable to its competitor. This might point to an increase in expenses over the asset base which is also evident from the competitor comparable return on asset ratio of the company. In 2015 and 2017 it has lower ratio when compared to its competitors. When analysed in conjunction with the operating ratio we can see that the reason for the lower return might be the higher expenses for given assets when compared to Frasers. The company has consistently had higher operating expenses per dollar of asset in comparison to its competitor which might need additional attention as this is a capital intensive industry and expenses need to be a minimum.
Dividends
CapitaLand Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Dividend Pay-out Ratio | 29.34% | 36.04% | 32.18% | 27.39% | 28.60% |
| Price to Earnings Ratio | 19.99274 | 23.40136 | 20.41472 | 20.68875 | 18.89763 |
| Earnings per share | SGD 0.27 | SGD 0.25 | SGD 0.28 | SGD 0.37 | SGD 0.42 |
| Dividend Cover Ratio | 3.407764 | 2.774639 | 3.107664 | 3.651281 | 3.496406 |
Frasers Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Dividend Pay-out Ratio | 40.33% | 33.05% | 0.00% | 52.23% | 56.08% |
| Price to Earnings Ratio | 19.21977 | 13.80956 | 19.83106 | 18.93595 | 19.27379 |
| Earnings per share | SGD 0.17 | SGD 0.27 | SGD 0.21 | SGD 0.24 | SGD 0.26 |
| Dividend Cover Ratio | 2.47971 | 3.025563 | – | 1.914634 | 1.783133 |
CapitaLand Limited has had a consistent dividend pay-out ratio floating around 30% which will be very attractive to any investor if the company. It also shows the strength of the company to stick to its dividend commitments and keep paying to its investors. However, compared to its investors the company has a low ratio. Only silver lining is the fact that Frasers has a fluctuating ratio which does not guarantee its investors a certain source income.
The Price to earnings ratio of the company is floating around the competitor value itself but it has seen a decline in over the last two years and is certainly not at its all time high which might not be as favourable a situation for the investors. The earnings per share is higher than the competitor and thus, the shareholders earn much more for holding every unit share of the company compared to its competitors. At any rate there is a need for the company to increase its dividend ratios specially around the price to earnings ratio to increase the investors’ confidence. In case of a requirement of an FPO that will help the company as well.
Stability
CapitaLand Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Debt to Equity Ratio | 0.900745 | 0.886809 | 0.882299 | 0.915205 | 0.940964 |
| Interest Coverage Ratio | 2.696723 | 2.859963 | 3.069284 | 3.305469 | 4.092724 |
| Gearing Ratio | 0.374626 | 0.378458 | 0.360722 | 0.390555 | 0.397184 |
| Current Ratio | 1.653832 | 1.821926 | 1.522341 | 1.389011 | 1.324731 |
Frasers Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Debt to Equity Ratio | 1.212393 | 1.165693 | 1.043687 | 1.069811 | 1.21635 |
| Interest Coverage Ratio | 14.30137 | 5.62144 | 6.7103 | 9.320657 | 4.441906 |
| Gearing Ratio | 0.46542 | 0.480805 | 0.429378 | 0.448277 | 0.470653 |
| Current Ratio | 1.951632 | 2.484107 | 2.021515 | 1.927737 | 1.520139 |
A quick glance shows that CapitaLand Limited has more stability than its competitor or rather a much accurate statement would be to say that the company has a much more efficient liquidity utilisation that the market competitor it faces. We can clearly see that CapitaLand Limited utilises much less debt compared to equity when kept at parallel standing against its competitor. When such high capital is employed in a sector like the real estate, it is prudent not to tie oneself with mandatory debt obligations.
The company has a lower interest coverage ratio than its competitor but it has seen a rise whereas the competitor seems to be losing its ratio. Thus, the company is stabilising to a much better state slowly. The gearing ratio shows a much better utilisation of sources of capital for CapitaLand when compared to Frasers.
The current ratio is something that can use some additional work and the company can learn from its competitors. It is evident that in case of a sudden rise in payment obligations the company will find itself in problem in fulfilling those obligations. Apart from that the company seems to be highly liquid and having a stable financial operation.
Efficiency
CapitaLand Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Asset Turnover Ratio | 0.088966 | 0.101203 | 0.114828 | 0.075022 | 0.086661 |
| Current Asset Turnover Ratio | 0.338906 | 0.377131 | 0.446428 | 0.37702 | 0.450129 |
| Inventory turnover Ratio | 0.331244 | 0.473751 | 0.755508 | 0.680386 | 0.567993 |
| Cash Cycle | 1,069.68 | 786.44 | 543.16 | 555.41 | 456.50 |
Frasers Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Asset Turnover Ratio | 0.103472 | 0.154401 | 0.142106 | 0.149083 | 0.132988 |
| Current Asset Turnover Ratio | 0.343207 | 0.561729 | 0.493333 | 0.622102 | 0.592535 |
| Inventory turnover Ratio | 0.341478 | 0.630857 | 0.601229 | 0.822194 | 0.694801 |
| Cash Cycle | 1,044.99 | 574.79 | 567.18 | 418.87 | 444.09 |
CapitaLand Limited definitely needs to work on its efficiency. The ratios show that the company is performing poorly in comparison to its competitor Frasers Limited. A look at the asset turnover ratio shows that the company is unable to properly manage its assets to generate enough sales. The same issue had been pointed out earlier in the report as well. We can see that the ratios are much below the industry competitor. The same is the case when the current asset turnover ratio is analysed. The ratio has improved in 2018 when compared to 2017 but it highly fluctuates and has always been worse than Frasers.
The inventory ratio shows that the company takes a large amount of time to convert any property into sales which is characteristic of the real estate industry. From 2014 to 2015thre was a considerable improvement in the industry itself but the company still struggles to outperform its competitor. The analysis shows that the large balance sheet of assets is causing the company issues to manage. There is a need for management to shed some of its long-term assets and make cash for the company.
Returns
CapitaLand Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Returns on Investment | 3.13% | 2.66% | 3.13% | 2.95% | 3.19% |
| Return on Assets | 2.63% | 2.26% | 2.60% | 2.52% | 2.73% |
| Return on Equity | 5.00% | 4.27% | 4.90% | 4.83% | 5.29% |
Frasers Limited
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Returns on Investment | 2.78% | 3.76% | 2.88% | 2.91% | 2.75% |
| Return on Assets | 2.35% | 3.34% | 2.47% | 2.55% | 2.34% |
| Return on Equity | 5.20% | 7.24% | 5.04% | 5.28% | 5.19% |
In terms of returns the company is performing better than the competitor. We can see that the returns on investment, asset and equity for CapitaLand Limited had been better than Frasers Limited for the year 2018. However, this was not the case in 2017 when the return on equity for the company was considerably lower. This also shows the presence of a small risk for the investors where they might find better returns from other real estate companies compared to our company. This is especially true for non-controlling investors. Such a dilemma can lead to the investors switching to other stocks for a better income.
Having said that in general the company is performing well in terms of returns and there is only a low risk at the bottom line where the small investors will speculate for better returns. Large investors and controlling shareholders will not have much problem with the returns as it is comparable to the competitor if not better in the long run. Thus, the company is doing well in when compared to the industry/competitor on the parameter of returns and risk.
Stock Price
| FY 2014 | FY 2015 | FY 2016 | FY 2017 | FY 2018 | |
| Market Share Price | 3.31 | 3.35 | 3.02 | 3.53 | 3.11 |
| Asset Value per share | 10.35872 | 11.07648 | 10.79457 | 14.46702 | 15.52977 |
The market price of the company has saturated and there has not been a significant increase or decrease in the stock price in the course of the last five years. We can see that thought he stock price has remained in a range the asset value per stock has increased by 50% and is much higher than the stock price. The stock price still remains below the cap when we actually subtract the outstanding debt and the asset value per share is still more than the market share price.
The straight times index has seen a rise in the value over the years. Its 3-year return is more than 14% as 14.14% to be precise. Thus, the stock price is definitely not linear with the stock exchange indicator and has seen no returns in the last 5 years. The stock price of the company is definitely a reason for concern for the current investors and stakeholders of the company and there needs to be action to change that. The situation is worse when we account for the constant dividends that have been paid and yet the stock price has remained constant.
Non-Financial Performance
CapitaLand Limited (the Company and, together with its backups, the Group) tries to the most astounding models of corporate administration. The Company is focused on normally improving its corporate administration rehearses. It has created and, on a progressing premise, keeps up sound and straightforward arrangements and practices to meet the particular business needs of the Group and to give a firm establishment to a trusted and regarded business undertaking.
The Company trusts that oversight from a solid and powerful Board goes far toward controlling a business endeavor to making progress. The Board, through the NC, endeavors to guarantee that there is an ideal mix in the Board of foundations, experience and learning in business and general administration, mastery significant to the Group’s matter of fact and reputation, and that every Director can convey to the Board an autonomous and target point of view to empower adjusted and very much viewed choices as made in light of a legitimate concern for the Group.
The Company is focused on treating every one of its investors decently and evenhandedly. All investors appreciate explicit rights under the Constitution and the significant laws and guidelines. These rights incorporate, in addition to other things, the privilege to take an interest in benefit conveyances. They are likewise qualified for go to general gatherings and are concurred the chance to take an interest successfully and vote at general gatherings (counting through arrangement of up to two intermediaries, on the off chance that they can’t go to face to face or on account of a corporate investor, through its selected delegate). Investors, for example, candidate organizations which give custodial administrations to securities are not obliged by the two intermediary constraint, and can select multiple intermediaries to visit, talk and vote at general gatherings of the Company.
Acquisitions
On January 14, 2019 the company acquired Ascendas-Singbridge for SGD 11,000,000,000. On October 4, 2018 the company raised SGD 300,000,000 as post IPO Debt from DBS Bank. These are just two of the many financing and acquisition activities that the company has been involved in. The company also uses its subsidiaries in other countries to acquire many more companies. Inorganic growth is a characteristic strategy of any real estate company and CapitaLand Limited is no exception of the same. The company thrives by acquisitions and reselling for higher prices.
Corporate Governance
The CapitaLand Board involves 11 chiefs of whom 10 are non-official executives. The Chairman is Mr Ng Kee Choe. The Board meets routinely, at any rate once every quarter, to think procedure approaches of the Group including huge acquisitions and transfers, favor the yearly spending plan, audit the execution of the Group’s organizations and affirm the arrival of the quarterly, half-yearly and entire year results. The Company stays concentrated on following the substance and soul of the standards of the Code of Corporate Governance 2012 (Code) while accomplishing operational greatness and conveying the Group’s long-haul key goals.
Conclusion
The report outlines the activities, financial and non-financial performance of CapitaLand Limited and points the impacts that each of them will have on the company and its shareholders. We can see that the company is indeed a market leader in terms of real estate. The company itself is one of the biggest brands of Singapore and holds a significant brand value.
There are issues that the company faces with the large investment base and that is clearly visible in the financial ratio analysis of the company. But it still continues to acquire more capital and land as that is how the company thrives.
The company also has a sound corporate governance and there is no such critique against the company in the media. The company prudently does its part in CSR and sustainability as well. For an outside investor CapitaLand will be a good opportunity to invest in and for the company itself there is slight room for improvement but it has to be commended in the operations it has been able to keep up till date.
REFERENCES
- Data Source: Bloomberg Terminal, 2019. Bloomberg LP
- Data Source: Investing.com, 2019. http://investing.com
- Data Source: Google Financials, 2019. finance.google.com
- Data Source: Company Financial Reports, 2019. 10K Form
- Data Source: Capitaland Limited, 2019. https://www.capitaland.com/aboutus
- 3BL Blogs: CapitaLand Limited Publishes Integrated Global Sustainability Report 2016 2017, Newstex, Chatham.
- CapitaLand Limited (C31) : Company Profile and SWOT Analysis2017, , Progressive Media Group, London.
- Singapore Bourse: Change In Capitaland Limited 2019, , Dow Jones & Company Inc, New York.
- Ticker Report: Contrasting CapitaLand (CLLDY) and WIRECARD AG/ADR (WCAGY) 2018, , Newstex, Chatham.
- “CapitaLand forges alliances with Alibaba to realize its omni-channel strategy”, 2017, Enterprise Innovation, [Online], .
- Watchlist News: Positive Press Coverage Extremely Likely to Affect CapitaLand (CLLDY) Share Price 2019, , Newstex, Chatham.
- American Banking and Market News: CapitaLand (CLLDY) Getting Somewhat Positive Press Coverage, Analysis Finds 2019, , Newstex, Chatham.
- CapitaLand Commercial Trust – Company Capsule2018, , Progressive Media Group, London.
- “CapitaLand”, 2006, Euroweek, , no. 974, pp. S9.
- New management appointments at CapitaLand entities 2017, , SyndiGate Media Inc, Amman.
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