City Developments Ltd - OCBC Investment 2016-05-12: Softer 1Q16 results but within expectations

City Developments Ltd - OCBC Investment 2016-05-12: Softer 1Q16 results but within expectations CITY DEVELOPMENTS LIMITED C09.SI 

City Developments Limited: Softer 1Q16 results but within expectations 

  • 1Q16 results broadly in line 
  • Acquired first office redevt in the UK 
  • Maintain BUY with unchanged S$9.89 FV 

Impacted by weak domestic market and hotel numbers 

  • CDL’s 1Q16 PATMI and revenues declined 14.4% and 11.2% YoY to S$105.3m and S$723.3m, respectively, mainly due to muted performances from the domestic property development and hotel business segments. 
  • Over the quarter, the group was impacted by the absence of profits from completed residential developments, including the Rainforest EC for which profits were recognized wholly upon TOP in the corresponding quarter last year (1Q15), while the group’s hotel segment was also impacted by a difficult competitive environment in key gateway cities which led to lower room rates and occupancy. 
  • We judge this set of results to be broadly within expectations. 
  • 1Q16 PATMI now comprises 17.6% of our full year forecast and we expect a back- loaded FY16 in terms of profit recognition, particularly as contributions from its overseas development projects roll in from 2H16. 

First office redevelopment property in the UK 

  • The group recently purchased for GBP 37.4m (S$73.5m) its first office building redevelopment property in the UK – the Development House located north of the City of London. 
  • We understand that the existing asset now has a GFA of 28.3k sq ft and can be redeveloped into a nine-storey office building with a GFA of 90k sq ft, including ancillary retail space at the ground floor. 
  • Given limited supply, CDL expects strong demand for offices in the location which is near Liverpool Street Station and is an established hub for the Technology, Media and Telecoms sector. 

Maintain BUY with unchanged FV estimate of S$9.89 

  • As at end 1Q16, the group’s balance sheet remains firm with over S$3.3b in cash and a relatively low net gearing ratio of 26% (without factoring any fair value surpluses on investment properties). 
  • We continue to see long term fundamental value in the group’s shares at present prices, particularly as we expect management to continue making headway in its capital recycling and growth strategy in FY16. 
  • Maintain BUY with an unchanged fair value estimate of S$9.89.

Eli Lee CFA OCBC Securities | http://www.ocbcresearch.com/ 2016-05-12
OCBC Securities SGX Stock Analyst Report BUY Maintain BUY 9.89 Same 9.89