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

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. 

Development projects and hotels a drag 

  • 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%). 

Cut TP and EPS; Maintain BUY 

  • 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