City Developments - Maybank Kim Eng 2016-02-25: Continued Asset Monetisation to Narrow Valuation Gap

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Continued Asset Monetisation to Narrow Valuation Gap

4Q15 results were broadly in line. Maintain BUY and RNAV-based TP of SGD9.33.
While near-term earnings could remain soft, we believe the stock’s GFC-level valuation of 0.7x P/BV is not warranted as we are not in a similar crisis.

Furthermore, we expect the large 40% RNAV discount to narrow as CityDev continues to monetise its assets, which are conservatively held at depreciated cost.

FY15 net income of SGD773m was in line at 104% of our forecast.
4Q15 PBT was boosted by its rental operations as it booked SGD314m of gains from the recently established Profit Participation Securities (PPS) involving SGD1.1b worth of office assets.
Management reiterates its 2018 AUM target of SGD5b for its fund management platform (2015: SGD2.6b) and will continue to monetise its portfolio of assets.
During the quarter, it took a SGD10.3m provision for residential projects in Singapore and impairments for two hotels at Millennium & Copthorne with PATMI impact to CityDev of SGD48m.
It is exploring options for Nouvel 18, which has a Nov 2016 Qualifying Certificate deadline.

CDL improved its disclosure in this set of results with detailed breakdown of its EBITDA contributions by key segments.
With improved disclosure on its hotel contributions, management will seek to engage FTSE for CityDev to be re-included into the FTSE EPRA/NAREIT Global Real Estate Index.

Management reiterated its desire to continue expanding into key markets of China, the UK, Japan and Australia. It is particularly bullish on China and could deploy more capital with a focus on eastern China.
It aims for levered IRR of > 20% for its overseas projects.
CityDev has sufficient balance-sheet capacity to take advantage of a market downturn with its conservative net gearing of 26% (incl. reval. = 19%).

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-02-25

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.33 Same 9.33