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

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Monetisation Road Continues

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.

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.

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.

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