City Developments - Solitaire PPS Club member
- We continue to see good value at 0.8x FY17F P/NAV, at 1SD below historical average. Key catalysts are:
- potential injection of assets into Profit Participation Securities (PPS),
- improvement in hotel operations, and
- accretive acquisitions/land banking.
9M16 net profit grew 13% on one-off gains.
- 9M16 net profit grew 13% y-o-y to S$409m (68% of consensus’ full-year estimates) driven by revenue growth of 12% y-o-y (largely contributions from property development), one-off gains from disposal of 53% stake in City E-Solutions (CES) and insurance claims.
- Property development continues to record strong growth coupled with a 24% y-o-y increase in 9M16 property sales value (number of units sold was stable y-o-y).
- Weak performance from the hotel properties continue to weigh down earnings.
Some light from overseas investments.
- CDL’s decision to diversify into the overseas property market amid a challenging outlook in the Singapore property market is finally coming to fruition.
- With most of its Singapore property projects having been completed or are soon-to-be-completed, we expect international properties (UK and China) to drive property sales/revenue recognition in 2017/2018. We believe this could partly offset the impact of a weak property market in Singapore.
- We maintain our BUY call with TP to S$9.90 pegged to a 20% discount to our RNAV of S$11.90.
- Supported by a strong balance sheet and diversified earnings base, CDL should be able to navigate well around the current uncertain market conditions.
Key Risks to Our View
- Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance.