City Developments - RHB Invest 2016-05-12: Reward Awaits The Patient Investor

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Reward Awaits The Patient Investor

City Developments (CDL) remains our Top Pick for its diversification and succession planning story.
1Q16 results were weaker, dampened by property development and hotel operations.
Its overseas development projects in China/UK and Lush Acres EC would start contributing in 2H16.
We continue to 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.

CDL’s overseas development projects would begin to contribute in 2H16.
We ascribe a 50% chance that CDL would be re-included into the FTSE EPRA/NAREIT Global Developed Index in its June quarterly review, with hotel operations accounting for less than 24% of its total FY15 EBITDA (1Q16: 21.5%).
We also expect another round of Profit Participation Securities (PPS) to unlock value from its South Beach project with a GDV north of SGD3bn, likely by end of this year.
Any partial relaxation of cooling measures by the Government would also lift its share price.

CDL has ~790 units of attributable unsold inventory as at 1Q16.
On average, it has sold 78.6% of total launched units, which is commendable despite challenging market conditions.
The group launched two executive condominium projects last year ie the Brownstone (now 67% sold) at Canberra Drive, which is expected to obtain the temporary occupation permit in 1Q18, and the Criterion at Yishun Street 51 (~20% sold), scheduled to obtain TOP in 2Q18. No firm dates for the launch of Gramercy Park, a high-end project located at Grange Road and the previously-won Government Land Sales site at Lorong Lew Lian in November last year.

CDL announced the purchase of its first office building redevelopment property in the UK (56-64 Leonard Street in Shoreditch) for SGD73.5m.
The existing 6-storey office building measures 28,266 sq ft, which can potentially be redeveloped into a 9-storey office building with about 90,000 sq ft, including ancillary retail space at ground floor.

CDL is our conviction BUY in the property space with a revised SGD9.35 TP (from SGD9.20).
Key risk is no bottoming out of Singapore residential prices.

Ong Kian Lin RHB Invest http://www.rhbinvest.com.sg/ 2016-05-12

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.35 Up 9.22