City Developments - RHB Invest 2016-02-26: Simply Compelling Valuations

City Developments - RHB Invest 2016-02-26: Simply Compelling Valuations CITY DEVELOPMENTS LIMITED C09.SI 

City Developments - RHB Invest 2016-02-26: Simply Compelling Valuations 

  • City Developments (CDL) remains our Top Pick for its compelling valuations. 
  • Executive chairman Kwek Leng Beng sees the possibility of cooling measures being relaxed this year – in line with our view on the Singapore residential market. 
  • We like CDL’s strong balance sheet which provides huge investment opportunities in a period of market dislocation, and its ability to capitalise on available opportunities. 
  • Maintain BUY and SGD9.22 TP, with a potential upside of 31%. 

Private funds platform. 

  • CDL has done two profit participation securities (PPS) deals valued at SGD2.6bn so far and expects this instrument to be a recurring feature going forward. It has set a target of SGD5bn assets under management (AUM) for its private funds platform by 2018. 
  • With the two PPS deals, it is now at the halfway mark. CDL believes the PPS platform would be a useful instrument to narrow the price discount gap to its NAV. 

Singapore residential market. 

  • CDL sold 674 units worth SGD692m in value last year, down 50% from SGD1.4bn in 2014. The group launched two executive condominium (EC) projects in 2015 – ie the Brownstone at Canberra Drive, which is expected to obtain the temporary occupation permit (TOP) in 1Q18, and the Criterion at Yishun Street 51, scheduled to obtain TOP in 2Q18. 
  • In the project launch pipeline is Gramercy Park, a high-end project located at Grange Road. Timing of the launch is subject to market conditions. 
  • The group clinched a government land sales (GLS) site at Lorong Lew Lian in Nov 2015, topping the second-highest bid by 2.6%. It plans to launch the project in 3Q16. 

No significant quality control (QC) issues apart from Nouvel 18 this year. 

  • Nuovel 18 will approach the QC deadline in Nov 2016 and the group is exploring various options to deal with it. 
  • Deadlines for other projects, Gramercy Park and New Futura, are still far out in 2Q18 and 4Q18 respectively.

Ong Kian Lin RHB Invest | Goh Han Peng RHB Invest | Ivan Looi RHB Invest http://www.rhbinvest.com.sg/ 2016-02-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.22 Up 9.18