City Developments - Maybank Kim Eng 2015-11-13: Soft quarter

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Soft quarter

3Q15 net income below expectation. Weaker than expected recognition and profitability for the development projects. Persistent weakness for hotels.
Cut EPS by 18%-30%. Lower TP 4% to SGD10.80 on RNAV adjustments.
Maintain BUY given cheap valuations of 39% RNAV discount and 0.8x P/BV. We believe that the stock could re-rate at the earliest sign of a rebound in residential sales.

3Q15 net income of SGD106m (-20.3% QoQ, -16.4% YoY) was below expectation. We attribute the earnings miss to:
1. lower-thanexpected profitability and recognition for its development projects; and
2. persistent weakness in the hotel segment.
Hotel PBT fell sharply by 32% YoY to SGD59m. This was driven by difficult market conditions in Singapore and the rest of Asia, where 9M15 RevPar declined by 7.5% and 10.9%, respectively. Start-up costs for The South Beach hotel was also a drag.
Despite the challenging office market, CDL’s office portfolio appears resilient with healthy occupancy of 97.3%. At The South Beach, 96% of office space is currently leased (2Q15: 90%).

We lower our RNAV estimate to SGD12.72 (from SGD13.24) after:
1. revising down the market value of M&C to GBp470 (from GBp550);
2. pushing back our residential sales forecasts slightly to reflect the current market weakness; and
3. lowering profitability for property developments and hotels.
We cut our FY15-17E EPS by 30%/18%/24% to reflect these changes and lower our TP to SGD10.80 from SGD11.25 based on unchanged 15% RNAV discount.
Despite the prevailing market weakness, we believe the stock remains undervalued at a 39% RNAV discount and 0.8x P/BV.
Given the cheap valuations, we expect the stock to re-rate at the earliest sign of a rebound in residential sales.
Maintain BUY.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-13

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 10.80 Down 11.25