City Developments - Maybank Kim Eng 2016-03-09: Monetisation Road Continues

City Developments - Maybank Kim Eng 2016-03-09: Monetisation Road Continues CITY DEVELOPMENTS LIMITED C09.SI 

City Developments (CIT SP) - Monetisation Road Continues 

Maintain BUY; Lower SGD9.04 TP 

  • We raise EPS by 10% after better disclosure for its overseas projects and adjusting project timelines. 
  • AUM plans of SGD5b by 2018 imply that another SGD2.4b of assets could be monetised. This could aid earnings and narrow its trading discount to RNAV. 
  • A limp hospitality market has been reflected in a lower market value for M&C (Millennium & Copthorne). This lowers our TP to SGD9.04 from SGD9.33. 
  • Maintain BUY with catalysts expected from further asset monetisation. 

What Could Be Monetised? 

  • Management’s AUM target of SGD5b for 2018 implies that another SGD2.4b of assets could be monetised over the next three years. 
  • As CityDev booked over SGD300m gains from each deal completed in the past two years, its next deal could promise EPS upside. 
  • We believe the high-end residential market could be its next source of opportunity, with time pressure from looming QC deadlines. 

Overseas Projects for Recognition 

  • We incorporate earnings for Hanover House, Reading (UK) and Hongqiao Royal Lake, Shanghai after improved disclosure. 
  • While overseas projects contributed EBITDA of just SGD33m in FY15, profits should rise as pre-sales are recognised. About 49% of Hong Leong City Center (Phase 1) has been sold. This will be completed in 4Q16. CityDev will also book profits from fully-sold Hanover House in 3Q16. 
  • Further sales of completed Hongqiao Royal Lake should add to its bottom line immediately. 

Pressure Point: Hospitality 

  • Its hospitality business appears to be under pressure today. In 2015, CityDev booked SGD73m of impairment charges for two hotels at M&C. 
  • Accordingly, its PBT plunged to SGD171m from SGD333m in FY14. 
  • Persistent weakness in M&C’s (Not Rated) share price led us to trim its valuation from 470 pence to 420 pence. Every 10% rise in its market value could add 20 SGD cts to our RNAV and TP. 

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-03-09
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 9.04 Down 9.33