Property Development & Inventory - CIMB Research 2016-07-07: City Dev takes full ownership of Nouvel 18

CITY DEVELOPMENTS LIMITED C09.SI WING TAI HLDGS LTD W05.SI

Property Devt & Invt - City Dev takes full ownership of Nouvel 18

Wing Tai sells 50% of Nouvel 18 to City Dev for S$411m (US$304m).
The implied pricing is close to our current assumption; we make minimal changes to our RNAV for both companies.
The sale will strengthen Wing Tai’s balance sheet and gearing, and create room for capital recycling.
The transaction price is fair relative to market; medium-term positive for City Dev.

Wing Tai has sold its 50% stake in Nouvel 18 to its JV partner City Dev for a cash consideration of S$411m. Post transaction, City Dev will own 100% of the development.
Nouvel 18 is a 156-unit high-end residential project located in the Orchard Rd area. The 313,870 sf GFA project was completed in late-14 but has yet to be launched. The price tag of S$411m is for 50% of the total issued shares in the project company, as well as Wing Tai’s share of the shareholders’ loans.

No implied pricing of the project, nor any gains from the sale for Wing Tai were revealed, but assuming the consideration is the value of the project, this translates to an ASP of S$2,619 psf GFA.
Our model currently factors in a breakeven cost and expected selling price of S$2,392 psf and S$2,565 psf of GFA, respectively. Hence, there are likely to be minimal changes to the RNAV of both companies from this transaction.

We view this transaction as moderately positive for Wing Tai as it effectively removes the risk of QC penalty payments, due later this year, on the company.
Secondly, with S$411m of cash inflow, gearing should be improved from c.0.2x as at Mar 16 to 0.07x, with the potential gross cash hoard of c.S$1.2bn. This puts the group in a very strong position to reinvest into new RNAV-accretive projects.

As for City Dev, we view the acquisition price of S$2,619 psf GFA for a completed project as fair, when compared to recent market transactions of between S$2,450-2,750 psf at Gramercy Park and Cairnhill Nine. We believe this completed project could be offered later this year, after Gramercy Park which is currently being marketed.
With a low gearing 0.26x, we believe City Dev’s reinvestment of capital in this project is a positive move for the medium term.

Wing Tai’s RNAV nudges up a tad to S$2.99 with TP of S$1.95 pegged to a 35% RNAV discount. We maintain a Hold on the stock until clearer re-rating catalysts from capital recycling emerges.
We trim City Dev’s RNAV by 0.1% to S$13.74 and our target price is adjusted to S$10.30, based on a 25% RNAV discount. We keep an Add rating on City Dev due to its attractive 41% discount to RNAV. We think the risk from its UK exposure has been priced in, while catalysts include locked in overseas projects lifting bottomline.

ADD, TP S$10.30, S$8.11 close
CIT’s valuations are attractive, at 0.81x P/BV with a low net gearing of 0.26x. UK concerns are likely to be priced in already. Potential near-term catalysts could materialise when its overseas contributions ramp up.

HOLD, TP S$1.95, S$1.64 close
WINGT’s near-term share price performance is likely to be dragged down by a weaker earnings outlook, despite cheap valuations. Potential catalysts could emerge when the company redeploys capital into RNAV- accretive acquisitions to improve its earnings trend.

LOCK Mun Yee CIMB Securities | Yeo Zhi Bin CIMB Securities | http://research.itradecimb.com/ 2016-07-07

CIMB Securities SGX Stock Analyst Report ADD Maintain ADd 10.30 Down 10.32

BUY Maintain BUY 1.95 Down 2.05