City Developments - CIMB Research 2016-08-11: Residential saves the day

City Developments  - CIMB Research 2016-08-11: Residential saves the day CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Residential saves the day

  • 2Q/1H16 results in line, proposes special interim DPS of 4 Scts.
  • Residential profits underpinned by Lush Acres EC contributions.
  • Overseas income to accelerate from 2H, from HLCC P1 and Hanover House.
  • Recurring income from hotel and rental income stable, focus on cost management.
  • Maintain Add, slightly higher target price of S$10.38 based on 25% discount to RNAV. 

Underpinned by residential development 

  • City Dev posted 32% growth in 2Q16 revenue to S$1.1bn (US$809m) while net profit was flat yoy at S$133.8m (US$99m). For 1H16, bottomline was down 6.8% yoy to S$239m.
  • 1H16 net profit made up 46% of our FY16 forecast. 
  • The better performance in 2Q was due to higher residential development profits, partly offset by weaker hotel and rental income (from partial divestment of assets to commercial PPS) segments. The group has proposed a special interim DPS of 4 Scts.

Residential the star performer 

  • In 2Q, CIT recognised S$106m (+35% yoy) of PBT from residential activities, which made up c.52% of total, thanks to 100% contribution from Lush Acres EC, completion of Haus @ Serangoon and additional sales from ongoing projects including Hongqiao Royal Lake. 
  • In 1H, it locked in new sales of S$386m. In 2H, it would be completing Jewel @ Buangkok, Echelon and Bartley Ridge and recognising profits from Gramercy Park (18% sold @ S$2,600 psf). 
  • It plans to market the 519-unit Forest Woods in late 3Q.

Overseas residential contributions to pick up pace in 2H 

  • Overseas residential will feature stronger in 2H with Hong Leong City Center (HLCC) P1 where Rmb2bn of sales have been locked in and another £16.3m from Hanover House in UK. 
  • Progressive completion of HLCC P2 and Eling Residences are slated for 2017. It remains confident on the long term potential of UK and has obtained planning consent for a luxury home care development at the Knightsbridge site and has started construction work at the Teddington site. 
  • Sales of UK and Australia projects when completed should boost FY17-18 development income.

Focus on cost containment in hotel segment 

  • Hotel division saw 14% decline in PBT to S$59m, largely led by lower RevPAR from London (-5.3%), New York (-5.8%) and Singapore (-10.2%). 
  • As operating conditions remain challenging, CIT would remain watchful on cost containment while strengthening areas of operating weakness. 
  • Meanwhile, rental income should remain relatively flat qoq with office and retail portfolio occupancy at 94-97%.

Healthy balance sheet, continue to optimise/unlock portfolio value 

  • Balance sheet remains healthy with gearing at 0.27x. CIT would also focus on optimising and unlocking value from its assets such as its PPS instruments and expand its fund management platform. 
  • It will also reassess its asset portfolio such as its industrial properties to optimise returns.

Maintain Add 

  • We tweak our FY16-18 EPS forecasts for the latest results and raise our RNAV and target price to reflect M&C’s higher share price and CDREIT’s higher target price. The stock is trading at a 36% discount to RNAV of S$13.85. 
  • Maintain Add. 
  • Catalyst for share price performance would materialise when it optimises value of its assets and develop track record for its overseas residential development activities. 
  • Risk to our call is execution risk to overseas projects .

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-08-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 10.38 Up 10.32