DBS Vickers 2015-08-14: City Developments Limited - 2Q15; Growing beyond home ground. Maintain BUY.


Growing beyond home ground 

 Strong set of 2Q15 results. 
 Projects in UK, China to be launched in 2H15. 
 BUY, TP S$11.54. 


2Q15 results in line. 

  • 2Q15 PATMI fell 3.2% to 133.5m on the back of a 4.2% decline in topline to S$824.9m. The drop was mainly from its property development segment (due to % completion milestones for ongoing projects). 1H15 PATMI was flattish at -0.4% y-o-y at S$256.5m. 
  • Other segments (Hotels +1.3% y-o-y, investment properties, +8.9% y-o-y) were marginally ahead compared to a year ago. Improvements in both the hotels and investment property segments were mainly due to an enlarged portfolio from past acquisitions. 
  • A special dividend of 4Scts per share has been declared (same as last year). Gearing position remains steady at 28%. 


Residential sales remain slow, given weaker new launch momentum. 

  • The ongoing tight government measures have taken their toll on the group’s residential business segment. Over 1H15, City Dev sold 178 units, valued at S$224m, which is less than 20% of the S$1.4bn in sales recorded last year. This has not included the newly launched The Brownstone EC, which cleared 195 units (out of a total 638). 
  • Looking ahead, City Dev is looking to launch a new EC project, the 505-unit The Criterion (EC in Yishun) which was won back in May’14 at a land price of c.S$330psf. 
  • We estimate the group to achieve a margin of c.15-18%, assuming selling price of S$800-820psf. In addition, subject to market conditions, the group is looking to launch Gramercy Park and could be contemplating a potential en bloc sale. 

South Beach development a driver for revenues from 2H15 onwards. 

  • South Beach development has obtained TOP and will open in stages throughout 2015. The office tower (510,000 sqft of space) has achieved 90% occupancy and the company is in advanced negotations for the remaining 10%. The conservation block (11,000 sqft) has been leased out to a bistro offering day-night entertainment. The 654-room hotel is on track to open from 4Q15 onwards. 

Overseas deployment. 

  • UK remains a key market for opportunities. It has already spent GBP242m over seven projects there and the projects are in various stages of obtaining government approvals to be re-launched as highend residential projects. Its residential projects in China remain launch-ready in 2H15 onwards: 
    1. 126-unit Eling Residences in Chongqing is targeted for soft launch in 4Q15; 
    2. sales permit for the sale of Suzhou Hong Leong City Center phase 1 consisting of 462 residential units has been obtained and has sold 281 units (98 units as of 1Q15). 
  • Other projects planned/delayed are the Huang Huayuan project (due to revision in unit size mix) and a Shanghai luxury Residential project (120 units, 85% unsold) as the group plans a complete overhaul of the project design. In Japan, the group is looking to build a high-end condo at a 16,815-sqm freehold site at Shirokane area in Tokyo Minato ward. 

Steady cashflows from Hotels. 

  • M&C revenue and profits are expected to perform strongly in 2015 on the back of refurbishments at Millennium Hotel Minneapolis and Grand Hyatt Taipei. In addition, the acquisitions of The Chelsea Harbour Hotel, Novotel New York Times Square and Grand Hotel Palace Rome are starting to contribute more significantly in 2015. 


  • We maintain our BUY call and TP of S$11.54, pegged to a wider 15% discount to our reappraised net asset value of S$12.60 and based on this, the stock offers potential total returns of >13%. Supported by a strong balance sheet and diversified earnings base from its commercial and hotel portfolio (c.47% of FY14F profit before tax), we believe that CDL will be able to weather the current uncertain market conditions well. 

Key Risks: 

Local property market demonstrates resilience. 

  • The risk to our view is if primary residential sales continue to be well taken up and residential prices rise. This would translate into upside risk to our RNAV for the stock. 

Interest rate risk. 

  • A rise in interest rates will have a negative impact on property transactions, given lower affordability and thus could adversely affect the group’s outlook.

Derek TAN | Rachael TAN | http://www.dbsvickers.com/ DBS Securities 2015-08-14
BUY Maintain BUY 11.54 Same 11.54