City Developments - CIMB Research 2015-12-09: Attractive valuations

City Developments - CIMB Research 2015-12-09: Attractive valuations CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - Attractive valuations 

  • Residential contributions from Singapore and overseas. 
  • Acquisition of Stag Brewery site deepens UK footprint. 
  • Weaker revPAR and higher costs eat into hotel contributions. 
  • South Beach to boost rental income. 
  • Maintain Add with an RNAV-based target price of S$10.47. 

■ Residential drivers from Singapore and overseas 

  • In addition to the launch of the Brownstone (45% sold) and Criterion (8% sold) ECs this year, overseas residential contribution is expected to accelerate in FY16. 
  • Eling Residences is scheduled for launch in Nov 15 and completion next year, while 381 residential/SOHO units in Suzhou have been sold and are to be handed over in 2016. It will also book profits from the sale of Emerald House in Croydon in 4Q15. 

■ Deepening UK footprint 

  • The recent acquisition of the sizeable 22-acre Stag Brewery site in Mortlake would further add to the group’s overseas diversification strategy. This mixed-use development will accommodate a major residential project, a new school, a hotel and other employment and leisure uses. 
  • When completed, it would create a completely new riverside residential belt for Richmond with new, green parkland. The planning and consultation process will begin in early 2016 and planning approval is expected to be granted in 1Q18. We have not factored in any enhancement to RNAV from this development 

■ Weaker revPAR and higher costs erode hotel profits 

  • Hotel operations, through M&C, saw a 32% dip in 3Q15 PBT to S$59.2, with PBT margins slipping 6.2% pts to 13.5% due to Asia hotels’ weaker performance and pressure from higher operating costs. 
  • This led to portfolio revPAR falling 1.4% yoy to £77.66 as Singapore saw per room revenue declining 7.5% while the rest of Asia lost 10.9%. 
  • To unlock value from its hotel real estate, it plans to redevelop some US hotels and its Seoul land parcel and undertake AEI for its Auckland property over the next 2-3 years. 

■ Ramping up rental income 

  • Rental income is underpinned by high portfolio occupancy of 97.3% in Singapore and the upcoming completion of South Beach. 
  • An estimated 96% of its office space has been leased, of which 70% have commenced operations. 
  • Construction work at the South Beach Avenue retail and F&B space is ongoing and should add to rental income when completed. 

■ Maintain Add rating 

  • We maintain our Add call with an unchanged target price of S$10.47, premised on a 25% discount to RNAV. 
  • The stock is trading at an attractive 0.81x P/BV and 45% below our RNAV. 
  • Catalysts could come in the form of realised profits from its overseas development projects.

LOCK Mun Yee CIMB Securities | http://research.itradecimb.com/ 2015-12-09
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.47 Same 10.47