City Developments (CIT SP) - Maybank Kim Eng 2017-08-11: Expect 2H Catch-Up

City Developments (CIT SP) - Maybank Kim Eng 2017-08-11: Expect 2H Catch-Up CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Expect 2H Catch-Up


Maintain BUY & SGD12.05 TP 

  • While City Developments' 1H17 made up just 31% of our FY17E, we deem the results in line as 2H is expected to make up for the shortfall. 
  • A strong rebound in home sales and an improving outlook for Singapore’s residential market led to provision write-backs. 
  • Mr Sherman Kwek will be taking over as CEO at year-end and we expect a smooth transition. 
  • We continue to see CityDev as a proxy for recovering home prices, which should provide re-rating catalysts. 
  • Reiterate BUY and SGD12.05 TP, at a blended discount of 11% to RNAV of SGD13.48.


Development earnings to catch up… 

  • CityDev's 1H17 EPS is just 31% of our FY17E. Nonetheless, we expect stronger development recognition in 2H17 from its impending launch of New Futura and completion of projects such as The Brownstone. A 5% RevPAR improvement at M&C (MLC LN, Not Rated) on a constant-currency basis and a SGD22m write-back of loan provisions lifted its hotel PBT by 5% YoY in 1H17. 
  • On the other hand, higher interest expense & depreciation at South Beach and other marketing costs weakened JV contributions. 
  • AEI will start at Republic Plaza soon, costing SGD60m with an ROI target of 10%. 
  • CityDev also sees more opportunities to unlock value of its assets through enbloc sales or the repurposing of non-core properties.


…as residential market perks up 

  • The group sold 691 homes worth SGD1.1b in 1H17, up from 1H16’s 324 worth SGD0.4b. 
  • With The Venue Residences fully sold ahead of its ABSD deadline, it wrote back SGD15m of provisions. Management sees a stronger Singapore residential market and aims to launch New Futura in 2H17. 
  • It will wait for better times to launch South Beach Residences and does not intend to relaunch W Residences just yet.


Sherman to take over as CEO 

  • Deputy CEO Mr Sherman Kwek will become CEO after Mr Grant Kelly leaves to join another listed company in Melbourne at year-end. We expect a smooth transition. 
  • Mr Kwek has reiterated his commitment to the group’s fund management platform established in recent years.


Swing Factors


Upside

  • Monetisation of investment assets conservatively held at cost.
  • Renewed interest in Singapore’s high-end residential market.
  • Strong rebound in home sales.

Downside

  • Sharp fall in home prices, necessitating impairment charges.
  • Poor execution of overseas projects. Recent ventures into China, the UK and Japan have raised risk profile.
  • Sharp increase in interest rates could hit demand for properties and drive down asset prices.




Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-11
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 12.050 Same 12.050



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