1. Price action shows lower lows being formed with triple bearish tops, each top being lower than each other . This shows declining interest in the stock despite the recent CityDev and Straits Trading and TQ5 Frasers Pty rallies. Looks likely that there will be filling of the gap with a fall back to the technical support level of 3.35 within a matter of days or weeks. Prices have already broken the 20-day simple moving average (SMA) and the 20-SMA is now pointing down, signalling a bearish trend.
2. Broader context of STI weakness and reemergence of COVID will greatly threaten CapitaLand gross profit margins as well as debt position and net income positions. Already, CapitaLand recorded not only a 96 percentage drop in operational profits from 4bn to 180mn pursuant to the FY20 report but also a staggering net loss of 1.6 bn in 2020. Indeed, with property developers like Citydev plummeting from $8.38 to $7.83 recently, there is no guarantee that Capitaland's price will remain supported at $3.7, especially amidst pellucid technical weakness.
3. With net cash position being 9 billion and net liabilities having increased drastically to 35 billion, it isn’t hard to predict that the financial status of the company will drastically decline especially if there is an epidemic resurgence within and without Singapore. There is not enough cash runway for the ailing company. This means a possible equity fundraising exercise or share placement just like Frasers Ppty.
4. The privatisation of the property development arm of Capitaland is not confirmed yet and there isn’t any update from the company on this. Even if the deal goes ahead, Capitaland is a high-beta stock which fluctuates up and down in a volatile manner. There is no guarantee that prices will remain supported at the 3.70 level until the end of the year, which is the supposed date of realisation of the privatisation scheme. There is more than ample time for the share price to dip, before, if at all, rising. There is too much uncertainty in that the scheme is not even prima facie confirmed.
5. With COVID resurgence all around the world, it is unclear how CLIM will be profitable (or as profitable as before). It may even need to raise funds. As such, CLIM may trade below its book value, which means the implied upside to $4+ is just theoretical. As a result of the Sincere saga, we are particularly worried how Capitaland China Retail Trust will perform and how its performance will affect CLIM.
6. With companies adopting a work-from-home arrangement, it is uncertain how useful the CICT (Capitaland Integrated Comm. Trust C38U) shares will be in terms of unlocking shareholder value. Furthermore, the C38U shares will likely be in odd lots which makes selling them difficult or expensive. We expect CICT as well as Retail REIT prices to drop in coming weeks, in tandem with the rise in share performance of COVID stocks, in light of vaccine ineffectiveness, new virus strains and potential upcoming mis-management of the COVID situation in Singapore and outside of Singapore.
7. Capitaland is not privatised yet until the end of the year. It is unclear how the property development arm will function in light of a COVID resurgence threat in Singapore - with construction suspended and attraction of ABSD as well as cooling measures upcoming, the company's performance is likely to be adversely and severely impacted. These will manifest into Capitaland's price-action so long as the deal has not completely materialised.
8. It is uncertain how the market will reach to postponement of the deal, due to its manifest complexity, or other reasons.
For the foregoing reasons, an investment in Capitaland is unsound and we expect prices to quickly and substantially decline to $3.35.
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