City Developments - DBS Research 2016-02-26: Bad news priced in

City Developments - DBS Research 2016-02-26: Bad news priced in CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - Bad news priced in 

  • FY15 results: flat y-o-y, supported by gains from disposal to PPS2 
  • Weak performance from all divisions 
  • Singapore residential market remains weak 
  • Overseas market is progressing well with new launches in 2016 onwards 

Attractive valuations with stock trading below GFC low. 

  • With the residential transaction market still slow in Singapore, topline drivers will mainly come from completion of the South Beach integrated development in Singapore and consistent and regular cashflows from its commercial and hotel segments. 
  • Despite the soft sentiment in the residential market, we believe that most of the negative news has been priced in and we see attractive valuations at 0.7x P/Bk which is below the GFC low of 0.83x. 
  • Potential re-rating catalyst is if City Dev is added back into FTSE EPRA/NAREIT Global Developed Index. 

Hotel operations offer cashflow stability. 

  • Despite hotel operations showing some weakness in FY15, mainly impacted by lower revPAR in Asia hotels, hotel operations remained as the largest revenue contributor (54%) among all divisions, which implies a substantial proportion of stable income. 
  • However, the potential further weakness in GBP may have an adverse impact on M&C’s contribution to the group. 

Seeing some light from overseas investments. 

  • City Dev’s decision to diversify into overseas property market amid a challenging outlook in the Singapore property market is finally coming to fruition. 
  • City Dev expects to recognize approximately S$400mn of property sales in FY16F as property projects are completed. 
  • Most of the ongoing projects in its overseas markets (ie China, UK, Australia, Japan, Korea, US) are expected to complete from 2017 onwards. We believe this could offset some impact of a weak Singapore property market. 


  • We maintain our BUY call and TP of S$10.26 pegged to 20% discount to our RNAV of S$12.82. 
  • Supported by a strong balance sheet and diversified earnings base, CDL should be able to weather the current uncertain market conditions well. 

Key Risks to Our View: 

  • Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance.

Derek Tan DBS Vickers | http://www.dbsvickers.com/ 2016-02-26
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 10.26 Same 10.26