City Developments - CIMB Research 2015-11-13: Lacklustre quarter

City Developments - CIMB Research 2015-11-13: Lacklustre quarter CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - Lacklustre quarter 

  • 3Q15 net profit down 16% yoy to S$106.4m, on the lower end of expectations, dragged by lower residential and hotel contributions. 
  • Slack likely to be filled by ramping up overseas residential and rental income. 
  • Maintain Add with an unchanged RNAV-backed target price of S$10.47. 

Drag from lower residential and hotel earnings 

  • City Dev reported a 16% decline in 3Q net profit to S$106.4m on a 38.8% drop in revenue to S$809.3m. 
  • The results were on the lower end of our expectations, accounting for 18% of our FY15 forecast. The drag came from slower residential profits due in part to a high base in 2014, and weaker hotel contributions. This was partly offset by higher associate and JV contributions and a slightly lower effective tax rate. 

Residential earnings decline from previous lumpy contributions 

  • The 36% yoy decline in residential PBT was due in part to a high base in 2014, when 100% of the contributions from the Blossom Residences EC was recognised in the previous quarter. Projects that added to earnings in 3Q15 include previously launched Echelon, Bartley Ridge, Coco Palms, D’Nest, Haus @ Serangoon Gardens. As a result, PBT margin in 3Q was a commendable 28% vs. 13.2% in the previous quarter. 

Weaker Revpar and higher cost bite into hotel profits 

  • Hotel operations saw a 32% decline in PBT to S$59.2m with PBT margin slipping 6.2% pts to 13.5% due to weaker Singapore and other Asia hotel performance and pressure from higher operating costs. Global Revpar fell 1.4% yoy to £77.66, with Singapore and the rest of Asia Revpar slipping 7.5% and 10.9%, respectively. 
  • To unlock value from its hotel real estate, it plans to redevelop some US hotels and Seoul land parcel and undertake AEI for its Auckland property, over the next 2-3 years. 

Overseas residential and rental income ramping up 

  • While Singapore take-up was slower with The Brownstone EC (45% sold) and The Criterion EC (5% sold), we anticipate overseas residential contributions to accelerate in FY16. Eling Residences is scheduled for launch in Nov and completion next year, while 381 residential/SOHO units in Suzhou are sold and to be handed over in 2016. It will book in profits from the sale of Emerald House in Croydon in 4Q15. 
  • Rental income should be boosted by South Beach where the office tower is 96% leased. 

Maintain Add rating 

  • We maintain our Add call with an unchanged target price of S$10.47, premised on a 25% discount to RNAV. At the current price, City Dev is trading at an attractive 0.8x P/BV and 45% below our RNAV. 
  • Catalysts could come when the group starts realising profits from its overseas development projects.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-11-13
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.47 Same 10.47