City Developments - DBS Research 2015-11-13: Diversification to pay dividends

City Developments - DBS Research 2015-11-13: Diversification to pay dividends CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - Diversification to pay dividends 

Attractive valuations with stock trading at – 2 SD level. 

  • With the residential transaction market still slow in Singapore, topline drivers will mainly come from the completion of the South Beach integrated development in Singapore and consistent and regular cashflows from its commercial and hotel segments. 
  • Despite the soft sentiment in the residential market, we believe that most negative news have been priced in and we see attractive valuations at 0.8x P/Bk and 0.6x P/RNAV which is close to historical – 2 SD level. 

Hotel operations offer cashflow stability. 

  • City Developments (CDL) derives close to 63%-69% of topline from its hotel and commercial portfolio, which deliver stable cashflows. 
  • Its hotel division, together with M&C is expected to perform strongly from 2015 onwards. This will mainly come from contribution from acquisitions and completed refurbishments across its properties, which are expected to result in a 3% rise in portfolio RevPAR going forward. 

3Q15 results in line. 

  • Net earnings for 3Q15 dropped 16% to S$106.4m, in line, due to lower contribution from the property development segment on lower project milestone completions. 
  • Close to 72% and 59% of pretax earnings came from recurring income segments. 
  • Operating margins were steady at c. 19%. 

Valuation: 

  • We maintain our BUY call and TP of S$10.26 pegged to 20% discount to our RNAV of S$12.82. 
  • Supported by a strong balance sheet and diversified earnings base, CDL should be able to weather the current uncertain market conditions well. 

Key Risks to Our View: 

  • Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance.


Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2015-11-13
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 10.26 Same 10.26


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