City Developments (CIT SP) - DBS Research 2017-11-06: New Strategic Partnership With China Vanke

City Developments (CIT SP) - DBS Vickers 2017-11-06: New Strategic Partnership With China Vanke CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - New Strategic Partnership With China Vanke

  • City Dev forms a strategic partnership with China Vanke via partial divestments of its Chongqing projects for RMB986m.
  • Expect to recognise divestment gains in 4Q17 and to ride on potential future upside with its remaining stakes.
  • Potential future collaborations in China and Singapore as this is not the group’s first partnership with China Vanke.



What’s New 

  • City Developments (City Dev) has entered a strategic partnership with China Vanke Co through a partial divestment of its Chongqing projects, divesting 70% and 50% of Chongqing Huang Huayuan and Eling Residences respectively for an aggregate consideration of RMB986m (approximately S$202m). The divestment is expected to complete in December 2017, subject to the fulfilment of certain conditions.
  • The strategic partnership would allow City Dev to tap on China Vanke’s expertise in managing the sales of the completed unsold units at Eling Residences and the development of Huang Huayuan (currently under design development stage).


Our thoughts 

  • Post the completion, City Dev is expected to recognise a gain from the divestment in 4Q17. The company will release more details upon the completion of the transaction. The ballpark estimated costs for both projects are approximately RMB0.9-1.1bn (based on land cost of c.RMB772m and estimated construction cost for Eling at c.RMB4,000 per sqm). 
  • With its remaining stakes, City Dev could ride on potential future upside from both the projects with a new partner, new expertise and fresh ideas.
  • According to the press release, the partnership will pave the way for future collaborations and business expansion opportunities in both China and Singapore. 
  • We believe that there could be future collaborations between two companies as future opportunities arise as this is not the group’s first partnership with China Vanke. Its associate, First Sponsor partnered China Vanke through a similar structure via the divestment of a 70% stake in Dongguan city project to China Vanke last year.




Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-11-06
DBS Vickers SGX Stock Analyst Report BUY REVIEW BUY 12.630 Same 12.630



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