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

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. 
  • Maintain BUY with a revised SGD9.35 TP, implying a potential upside of 16%.

Catalysts emerge in the remainder of the year. 

  • 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.

Singapore residential market. 

  • 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.

Maiden UK office building acquisition. 

  • 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 

  • 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