RHB Securities 2015-08-14: City Developments - 2Q15; Cushioned By US Hotels. Maintain NEUTRAL.

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CITY DEVELOPMENTS LIMITED C09.SI

Cushioned By US Hotels 

• 2Q/1H15 results were largely in line, cushioned by its hotel operations mainly in the US. 
• According to our estimates, CDL has 77% RNAV exposure to Singapore. 
• With persistent headwinds confronting the domestic front, we reiterate our NEUTRAL call on CDL with a RNAV derived TP of SGD9.76 (from SGD10.20, 7% upside). 

 2Q/1H15 results largely in line. 

• City Developments (CDL) reported 2Q/1H15 PATMI of SGD133.5m/SGD256.5m, down 3.2%/0.4% YoY, attributable to the absence of income from Buckley Classique and reduced contribution from H2O Residences, coupled with lacklustre performance from Singapore hotels. On the flip side, CDL’s earnings were wellcushioned by its hotel segment, which did well, mainly driven by its hotels in the US. 

 Brownstone executive condominium (EC) – best-performing EC this year. 

• In comparison to other ECs launched this year, the Sembawang EC project has performed the best during its first weekend. 
• According to the Urban Redevelopment Authority (URA), the ASP for the Sembawang EC is SGD813 psf and has sold 31% (195 out of 638) of its project. Interestingly, the most well-received was its 3-bedder, amounting to ~59% of total sold units (range of 900 to 1,090 sq ft per unit). 
• Amid the challenging property market, sales for Coco Palms and Commonwealth Towers moved slowly, with 86% and 56% sold respectively. The ASPs for Coco Palms and Commonwealth Towers were SGD1,000 and SGD1,258 psf respectively. 

 Give some time for diversification strategy. 

• We expect it will take some time before CDL’s overseas residential projects start to contribute to earnings. 
• CDL delineates its two-pronged diversification strategy in light of the subdued domestic property market. The first is to expand its core development business overseas and the second is via further developing its unlisted funds management strategy, by possibly launching one or more deals this year encompassing existing CDL assets, should conditions be favourable. 
• With persistent headwinds confronting the domestic front, and with its diversification strategy yet to bear fruit, we remain NEUTRAL on CDL with a lower RNAV-derived TP of SGD9.76 (from SGD10.20).

 
Ong Kian Lin | Ivan Looi | http://www.rhbgroub.com/ RHB Securities 2015-08-14

NEUTRAL Maintain NEUTRAL 9.76 Down 10.20