City Developments - CIMB Research 2016-02-26: Boosted by monetization gains

City Developments - CIMB Research 2016-02-26: Boosted by monetization gains CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - Boosted by monetization gains 

  • Results lifted by gain from commercial PPS platform. 
  • Slower residential sales in FY15; 2 launches slated for FY16. 
  • Recurrent income base expanding on increasing rental income. 
  • Overseas development income to pick up pace from FY16 onwards; fund management platform on track to reach S$5bn by 2018. 
  • Maintain Add with a slightly lower target price of S$10.32. 

Gain from commercial PPS platform boosted bottomline 

  • CIT’s 4Q15 revenue rose 1% yoy to S$855m while net profit grew 6.6% to S$410.5m. 
  • For FY15, revenue dipped 12% yoy to S$3.3bn while net profit was relatively flat yoy at S$773.3m but slightly below our estimate. 
  • The resilient performance was largely due to the inclusion of a S$314m of pretax gain from its commercial PPS platform transacted in Dec 15. This more than offset $73.4m impairment losses on selected hotels held by M&C. 
  • The group proposed a final total DPS of 12 Scts (total FY15 DPS: 16 Scts). 

Slower residential sales but locked-in billings underpin results 

  • The residential segment saw a dip in revenue due to a high base in FY14. 
  • In FY15, CIT sold a total 674 homes valued at S$692m, about half of the quantum seen in FY14 with a further 858 units of unsold inventory. 
  • Nonetheless, we anticipate residential contribution to recover in FY16 with the recognition of Lush Acres EC in 3Q16. 
  • New launches include Gramercy Park and the recently acquired 500-unit Lrg Lew Lian site. 

Growing recurrent income base 

  • Recurrent income sources including hotel and rental income made up 71% of EBITDA, giving the group a stable income base. 
  • Hotel operations saw higher revenue from its newly acquired hotels in FY15 and slightly higher portfolio Revpar. However, management guided that operating conditions remain competitive. 
  • Additional income from South Beach, with 97% of its office and 40% of the retail space leased, should help lift recurrent income. 

International platform to gather activity momentum 

  • The group’s international platform has been expanding with 70% of its 4.9msf residential landbank located overseas - in China, UK, Japan and Malaysia.
  • CIT should start to recognise contributions in China (Hong Leong City P1 and Hongqiao Royal Lake villas) and the UK (Hanover House). New launches include Eling Residences, China in 2Q16 as well as Belgravia, Knightsbridge and Chelsea projects when completed towards end- 2016. 
  • We anticipate overseas profits to pick up pace from this year. 

Investment view 

  • The group is on track to reach its S$5bn AUM by 2018 (currently S$2.6bn) and is likely to explore more asset monetisation platforms this year. This will enable it to realise its underlying RNAV value. 
  • With a 26% gearing and the ability to recycle capital, we believe CIT will be able to redeploy its balance sheet capacity into RNAV accretive investments when opportunities arise. 
  • We maintain Add with a slightly lower RNAV-backed target price of S$10.32, as we adjust for lower M&C and CDLHT share/target price.

LOCK Mun Yee CIMB Securities | YEO Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-02-26
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 10.32 Down 10.50