City Developments Ltd - OCBC Investment 2016-04-25: NOW A GLOBAL PLAYER GEARED FOR GROWTH

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CITY DEVELOPMENTS LIMITED C09.SI 

City Developments Ltd - NOW A GLOBAL PLAYER GEARED FOR GROWTH

• Ready for global growth
• Significant balance sheet strength
• Fair value estimate increased to S$9.89

Expedient evolution into a global growth player

• While City Developments (CDL) has traditionally been seen as a stalwart of the domestic real estate market, we believe that the group’s expedient evolution into a global growth player over the last three years has been under-appreciated by the market. 
• Over this period, the group’s business profile has grown significantly more diversified and robust. 
• As at end 2015, CDL’s overseas exposure increased to 45% of total assets (with a strategic focus on growth in key markets China, UK and Japan) from 36% as at end 2012, while 71% and 51% of the group’s EBITDA and total assets, respectively, were attributable to recurring income segments as end 2015.

Have significant financial resources to deploy

• As management executes on its global growth strategy, we highlight they have significant financial resources at their service. 
• First, the group sits on a robust balance sheet with a low 26% net gearing (19% if revaluation surpluses on investment properties are accounted for) and a cash balance of S$3.6b as at end 2015. 
• Second, CDL by now has a demonstrated capacity to recycle capital from its stabilized assets through its private funds platform, which will add new wings to its growth ahead as it structurally re-deploys capital into higher return global projects. In Dec 2014 and Dec 2015, the group successfully completed S$1.5b and S$1.1b of cashflow syndication of its mixed use and office assets, respectively, under its profit participation securities (PPS) platform.

Maintain BUY with higher fair value estimate of S$9.89

• CDL shares are currently trading at a significant 29% discount to our RNAV estimate and we see long term fundamental value at present prices, particularly as we expect management to continue making headway in its capital recycling and growth strategy in FY16. 
• To reflect the strengthened business profile of the group, we lower our target RNAV discount from 30% to 20% and our fair value estimate increases from S$8.67 to S$9.89 as a result. 
• Maintain BUY.

Eli Lee CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-04-25

OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 9.89 Up 8.67