CITY DEVELOPMENTS LIMITED
C09.SI
Robust core earnings
- The 3.2% decline in City Dev’s 2Q15 net profit was due to lower residential and hotel income.
- 1H15 net profit accounted for 43% of our FY15 forecast.
- The group has earmarked a more active launch pipeline in 2H, with total of 679 units and plans to ramp up launches in China.
- Added income from South Beach (office: c.96% committed, hotel: soft launch in Sep 15) should also contribute positively to bottomline.
- Upgrade the stock from Hold to Add, with lower target price of S$10.47 (at 25% discount to RNAV).
Dragged by lower residential and hotel PBIT
- City Dev reported 2Q net profit of S$133.5m (-3.2% yoy) on a 4.2% yoy dip in topline to S$825m, bringing 1H net profit to S$256.5m or 43% of our full-year forecast.
- Slower property development (41% of 2Q PBT) and hotel contributions (36% of 2Q PBT) was partly offset by higher rental income (18% of 2Q PBT).
- Residential operations were negatively affected by the completion of H2O Residences and Palette, partly offset by maiden profits from Coco Palms and progressive billings from UP@Robertson Quay, Jewel@Buangkok and other projects.
- Hotel PBIT fell 8.7% yoy due to reduced contributions from Asia, where Revpar dipped 10.5% yoy (largely in Spore and Korea).
- City Dev declared a special interim DPS of 4 Scts, translating into an annualised yield of c.1%.
More launch activity in 2H
- City Dev has locked in S$224m new residential sales in 1H15 (vs S$1.07bn in 1H14).
- Going into 2H15, on top of the launch of The Brownstone EC in Jul, it also plans to offer the 505-unit The Criterion EC and will time the Gramercy Park launch to market.
- Overseas, it has sold 281 residential units at Hong Leong City Centre in Suzhou and plans to offer Eling Residences in Chongqing in 4Q.
- The residential component of the Teddington project in the UK is expected to be marketed in 2Q16.
- Meanwhile, rental income is expected to be boosted by new contributions from South Beach office tower (c.96% committed) and soft opening of The South Beach Hotel in Sep 15.
- While the hotel operating environment remains challenging, the group would continue to undertake asset enhancements to drive room rates.
- With gearing at a low 0.28x, it plans to tap into opportunities locally and overseas, including China.
- To expand its fund management platform, the group could consider asset divestment activities.
Upgrade to Add
- Following the recent share price retracement, we upgrade City Dev to Add on attractive valuations.
- We lower our RNAV by 4% to S$13.95 and adjust our target price accordingly to S$10.47 (25% discount).
- Potential catalysts could come from a more active launch pipeline in 2H and higher recurring income from South Beach.
LOCK Mun Yee | TAN Xuan CFA | http://research.itradecimb.com/ CIMB Securities 2015-08-14
10.47
Down
10.90
