City Developments - RHB Invest 2015-11-13: Attractively-Priced Now

City Developments - RHB Invest 2015-11-13: Attractively-Priced Now CITY DEVELOPMENTS LIMITED C09.SI 

City Developments (CIT SP) - Attractively-Priced Now 

  • 3Q/9M15 results were largely in line, as CDL reported PATMI of SGD106m/SGD363m, down 16.4%/5.7% YoY. 
  • While we recognise weakness in both local residential market and global hotel industry, its share price has fallen (-24.9% YTD) to an attractive price level. 
  • Upgrade to BUY (from Neutral) with a lower RNAV-derived TP of SGD8.75 (13.5% upside), as we assume a decline in its ASP for the local residential projects. 

 3Q/9M15 results largely in line. 

  • City Developments (CDL) reported 3Q/9M15 PATMI of SGD106.4m/SGD362.9m, down 16.4%/5.7% YoY. 
  • 3Q/9M15 revenue fell c.39%/16% YoY mainly due to an absence of significant revenue recognition from executive condominium (EC) projects, as compared to revenue recognised in entirety for Blossom Residences EC in 3Q14 following the project’s completion. 

 Sales at existing projects remain healthy, while no rush to sell off its new ECs. 

  • CDL launched its best-performing EC in July, Brownstone, which is currently c.45% sold. Riding on the success, it launched another EC in late September, The Criterion, with 45 units sold. 
  • According to management, EC buyers tend to be more active when the project is closer to completion as this is where they will be able to envisage the value of the offering. Hence, CDL remains confident of its long-term sales performance. 

 Hoteliers are not too rosy in the global scene. 

  • Due to the challenging conditions in Asia, 3Q15 global revenue per available room (RevPAR) declined 1.4% YoY to c.GBP78. In Singapore, 9M15 RevPAR declined 7.5% YoY as a result of new room supply and lower visitor arrivals. Similarly, the rest of Asia witnessed a 10.9% YoY decrease in RevPAR, mainly due to the weakening of China’s economy. 
  • Moving forward, we expect the weak economic growth and higher operating costs to continue to pressure margins in Asia. 

 Upgrade to BUY as share price has fallen to attractive level. 

  • We reduce our RNAV-derived TP to SGD8.75 (from SGD9.76) as we assume: 
    1. a 10% decline in ASP in both mid and mass market projects, and 
    2. a 5% decline in ASP in high-end projects. 
  • As CDL’s share price has fallen 24.9% YTD, we find the counter trading at an attractive price level to its TP. 
  • Upgrade to BUY from Neutral with a potential 13.5% upside from its TP.

Ivan Looi RHB Research | Ong Kian Lin RHB Research | http://www.rhbinvest.com.sg/ 2015-11-13
RHB Research SGX Stock Analyst Report BUY UPGRADE NEUTRAL 8.75 Down 9.76