City Developments - Nicely Poised for Acquisitions
- With a lightened balance sheet, we expect CDL to pounce on acquisition opportunities both locally and overseas.
- Following strong sales in Singapore and overseas, we expect it to continue to do well in 2017.
- Recurring income is set to receive a boost, with South Beach becoming fully operational.
- Hotel operations should stabilise, after a challenging 2016.
- CDL remains our preferred pick for its asset monetisation ability, nimble capital management and acquisition potential.
- Maintain BUY, raising TP to SGD10.50 (vs SGD9.70, 9% upside).
Strong residential sales despite challenges, acquisitions beckon.
- We expect City Developments (CDL) to grow through acquisitions in 2017, with lowered net gearing of 16% offering a sizeable war chest of over SGD3bn.
“5-5-5 strategy” on target.
- CDL’s diversification strategy of having SGD5bn of assets in five overseas markets (Australia, the UK, China, Japan and US) by 2018 is on track, with SGD2.5bn in acquisitions made so far.
- On the fund management side, CDL has built up a portfolio of SGD3.5bn via three profit participation securities (PPS) and is on target to achieve SGD5bn by 2018.
- We believe CDL can potentially form a PPS structure for its remaining high-end units, and in the medium term, monetise its South Beach project that has GDV north of SGD3bn.
Hotel operations to stabilise in 2017.
- CDL’s listed hotel subsidiary, Millennium & Copthorne (65% stake), had a weak 2016. Overall RevPAR fell 2.3%YoY, due to weaker performance from New York and Singapore and UK hotels.
- With asset enhancement works completed and demand showing signs of pick-up, we expect hotel performance to stabilise.
- Maintain BUY, with a higher TP of SGD10.50, pegged at a 25% discount (from 30%) to our revised RNAV of SGD14.01.
- We lowered our RNAV discount to factor in a recent spike in interest in M&A transactions in the real estate sector, as well as the potential bottoming of Singapore property prices in 2017.
- We have lowered our FY17F-18F net profits by 8% and 10% respectively, as we expect delays in launches for its UK and China projects.