City Developments(CIT SP) - Maybank Kim Eng 2017-10-10: Possible Cash Offer For M&C

City Developments(CIT SP) - Maybank Kim Eng 2017-10-10: Possible Cash Offer For M&C CITY DEVELOPMENTS LIMITED C09.SI

City Developments(CIT SP) - Possible Cash Offer For M&C


First read positive; Maintain BUY 

  • CityDev announced a possible cash offer for 65.2%-owned Millennium & Copthorne Hotels PLC (MLC LN, Not Rated).The potential offer price of 552.5 pence implies 0.67x P/BV, which is broadly in line with its historical multiples. 
  • While CityDev intends to maintain M&C’s current business model, we believe the asset-rich company offers value unlocking potential in the medium term. 
  • Our latest RNAV values its stake in M&C at 460 pence per share. Lifting this to the offer price of 552.5 pence or its latest BVPS of 820.6 pence would bring our RNAV to SGD14.01 and SGD15.13, respectively. 
  • Maintain BUY and RNAV-based Target Price of SGD13.60.



Offer price implies 0.67x P/BV 

  • The proposed offer price of 552.5 pence which is comprised of a cash offer of 545 pence and a special dividend of 7.5 pence is a 21.4% premium over its latest closing of 455 pence. 
  • The implied offer price of GBP1,794m for the company represents 0.67x its latest book value of GBP2,665m, which is close to its 10-year average P/BV of 0.72x. A potential buyout of all minority shareholders would cost CityDev c.SGD1.1b. 
  • With SGD3.3b of cash and a comfortable net gearing of 0.18x, we opine that CityDev has the balance sheet capacity to fund this potential purchase.


CityDev to maintain current model 

  • CityDev intends to maintain M&C’s current business model and has no intention to sell or repurpose any of its hotels in London or New York. It is required to announce a firm intention on whether it will make an offer for the remaining stake in the company by 6 Nov. 


Asset-rich company; Value-unlocking potential in the medium term 

  • While CityDev announced its intention to maintain M&C’s current business model, we believe it could potentially unlock value in the asset rich company in the medium term. For example, M&C unlocked the redevelopment potential in the former Copthorne Orchid Hotel Singapore when it was redeveloped into a 150-unit condominium, The Glyndebourne, in 2013.


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/ 2017-10-10
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 13.600 Same 13.600



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