Maybank Kim Eng 2015-08-13: City Developments Limited - 1H15; Flat Profits Amid Market Weakness. Maintain BUY.


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
BUY Maintain BUY 11.25 Down 11.40