Singapore Property - Maybank Kim Eng Research 2016-07-06: CityDev acquires Wing Tai’s 50% stake in Nouvel 18

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

Singapore Property - CityDev acquires Wing Tai’s 50% stake in Nouvel 18

CityDev acquired Wing Tai’s 50% stake in Nouvel 18, a 156-unit high-end project in the prestigious Ardmore locale, for SGD411m.
By acquiring its joint venture partner’s stake, CityDev has assumed full ownership of this project.
With the streamlining of its shareholding structure, we expect CityDev to aggressively market this project as a bulk sale or build a structured product with it to avoid incurring significant Qualifying Certificate (QC) charges.

We cut our ASP assumption to SGD2,500 psf from SGD3,000 psf and assume the sale of all units by its QC deadline in Nov 2016.
Our TP for CityDev is raised to SGD9.17 from SGD8.92 to reflect our higher RNAV from the lack of QC penalties.
Proceeds from the sale will improve Wing Tai’s balance sheet and we project almost no gearing after this transaction. Maintain HOLD on Wing Tai with unchanged TP of SGD1.71.

At SGD411m, this implies a property value of SGD822m on a 100% basis. This translates to a unit price of around SGD2,350 psf. As the transacted price is close to our estimated cost of developing this project, we reckon the stakes were exchanged at cost.
CityDev will assume the full development risk associated with this project after this transaction.

In March 2007, CityDev and Wing Tai set up a 50-50 joint venture, which acquired Anderson 18 for SGD517.8m (including development charge of SGD40.1m) or SGD1,650psf per plot ratio. It has since been developed into Nouvel 18.
Despite completing in Nov 2014, it has not been launched due to the soft sentiment in the high-end property market in recent years.

As an enbloc site, this project is subject to the QC rules, which stipulate a deadline for the sale of units. QC charges will be imposed at a rate of 8%/16%/24% for the first/second/third and subsequent years on the land cost after its project deadline. The charges are pro-rated based on the number of unsold units at the various deadlines.
As the project is fast approaching its first deadline in Nov 2016, we expect CityDev to aggressively market this project to avoid incurring significant QC charges. This could result in price cuts. Hence, we lower our ASP assumption for this project to SGD2,500 psf from SGD3,000 psf.
Failing to offload this project by its QC deadline will result in a penalty of SGD38m (8% of its land cost of SGD477.7m) to extend its project deadline by one year.

We raise our TP to SGD9.17 from SGD8.92 to reflect our higher RNAV estimate from the change in assumptions for Nouvel 18.
We raise FY16E EPS by 6% as we assume the sale of all units at this development by Nov 2016.
While a successful sale could remove an overhang on the stock, we believe uncertainty remains over the timing and the ultimate selling price of this project.
Furthermore, the stock's index re-inclusion has already been announced and asset monetisation deal this year could be smaller.
Our expectations for property cooling measures to remain for an extended period of time could also weigh on stock sentiments. Therefore, we see no clear catalysts in sight.
Maintain HOLD.

Proceeds from the sale of its 50% stake in Nouvel 18 will improve its balance sheet and we project almost no gearing after this transaction. It will also free up capital that could be redeployed into another site.
We fine tune our FY17/18 EPS by -2%/+11% to reflect adjustments to this project.
While the latest stake sale has reduced its exposure to Singapore’s residential market, we continue to see challenges for the rest of its projects. A large number of units remain unsold at Le Nouvel Ardmore and we see slow sales trajectory at the current selling price. Similarly, 74% of The Crest, its 40%-JV project, remains unsold and will be facing its Additional Buyer's Stamp Duty (ABSD) deadline in Sep next year. We have conservatively build in ABSD payments for this project. We believe these two factors explain our below consensus EPS forecasts.
Maintain HOLD with unchanged TP of SGD1.71 as we believe negatives are largely priced in.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-07-06

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.71 Same 1.71

HOLD Maintain HOLD 9.17 Up 8.92