CITY DEVELOPMENTS LIMITED
C09.SI
Flat Profits Amid Market Weakness
- 1H15 below on lower hotel profits. Launch of Gramercy Park will depend on market conditions. Cut EPS by 16%.
- No plans for share buybacks despite share-price decline. Engaging FTSE to review index exclusion.
- Maintain BUY with catalysts expected from monetisation of undervalued assets held at cost.
- TP lowered to SGD11.25 from SGD11.40 after adjusting RNAV. Still at 15% discount.
What’s New
- 1H15 net profit of SGD256.5m (-0.4% YoY) was below expectations on lower hotel profits, at 26% of our FY15F.
- Singapore residential sales declined on fewer units launched.
- CityDev expects to launch its other EC project, The Criterion, in 4Q15, after selling 195 units of Brownstone.
- The launch of Gramercy Park will depend on market conditions.
- Hotel RevPar improved in the US and New Zealand, though this was negated by a weaker showing in Asia and Europe. South Beach Tower is now 90% leased (1Q15: 88%). Another 6% is pending documentation while the remaining 4% is under advanced negotiations.
- Management attributed CityDev’s sharp share-price decline to weak stock market conditions and its exclusion from the FTSE EPRA/NAREIT Global Developed Index.
- It is engaging FTSE to review its exclusion.
- It has no plans for share buybacks and will seek to expand funds under management, without delving into details due to non-disclosure agreements.
What’s Our View
- We lower hotel profits and push back sales recognition for Nouvel 18 and Gramercy Park to reflect the market weakness.
- We lower FY15-17 EPS by 16% and our RNAV to SGD13.24 from SGD13.41.
- Consequently, our TP drops to SGD11.25 from SGD11.40, based on an unchanged 15% discount to RNAV.
- We see good value as CityDev is trading at the low end of its historical five-year range.
- Catalysts could come from a monetisation of undervalued assets held on its balance sheet at cost.
- Maintain BUY.
Derrick Heng CFA | http://www.maybank-ke.com.sg/ Maybank KE 2015-08-13
11.25
Down
11.40
