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

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 

Maintain BUY and SGD9.33 TP 

  • 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. 

PPS 2 a boost; Targeting 2018 AUM of SGD5b 

  • 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. 

Improved disclosure 

  • 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. 

Overseas expansion to continue 

  • 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