In Dec 2008, the Chinese government cut its key 1-year lending rate to 5.31%, compared to ahigh of about 7.5% at the beginning of the year. It also unrolled a slew of measures aimed at a flagging real estate market. These measures could underpin a recovery in the Chinese property market possibly in 2H09, which will be positive for CapitaLand.

Also in December, CapitaLand converted its stake in Shenzhen developer Heng Yue’s convertible bonds into a 58.3% effective equity stake in a mixed-development known as Nanyou Shopping Park. CapitaLand will manage the development of the 3m-sq ft project, which comprises residential, retail, office and hotel components.

The original intended sale of the Menara Citibank to IOI Corp for RM586.7m was aborted, with negative business sentiments cited as the reason. For its 30% stake, CapitaLand pocketed $9.3m from the forfeited deposit. Recent reports from the Malaysian Business Times suggested that the Employee’s Provident Fund could make a bid for the building.

We understand that sales of CapitaLand’s residential units in China are still ongoing, but at a much slower pace. Its projects in the GCC have also achieved admirable sales, especially its 49%-stake project in Abu Dhabi called Rihan Heights, which is 85%-sold as of October. Total sales chalked up in Abu Dhabi and Bahrain since June 08 is about S$1bn.

We think that CapitaLand is in pole position for recoveries in its key markets like Singapore and China, and is still sitting comfortably on its $4.2 bn cash hoard. Its diversification into the GCC is also shining through. Reiterating our BUY recommendation, target price $4.18 based on a 10% discount to RNAV.