City Developments - Maybank Kim Eng 2016-08-11: Clouds Have Not Lifted

City Developments (CIT SP) - Maybank Kim Eng 2016-08-11: Clouds Have Not Lifted CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Clouds Have Not Lifted

In line; maintain HOLD 

  • At 34% of our FY16E, 1H16 EPS was nevertheless in line as we expect profit recognition of presold projects to power 2H. Still, we see little reason to turn more positive as property-cooling measures may be prolonged and CityDev is a major home builder in Singapore. 
  • Maintain HOLD and SGD9.17 TP, at a 20% discount to RNAV. 
  • For sector exposure, prefer CapitaLand (BUY, TP SGD3.93).

2H should be stronger 

  • 1H16 net profit fell by 6.8% YoY to SGD239m. Stronger development revenue and profits were driven by profit recognition from Lush Acres, an Executive Condominium project that was completed in June. 
  • Rental profits remain largely stable. However, weak hotel operations remain a drag on the group’s performance. 
  • While 1H16 made up just 34% of our full year estimates, we expect a stronger 2H performance. 2H16 should benefit from the profit recognition of pre-sold projects. These include 69% of Phase 1 of Hong Leong City Center in China and 31 units at Gramercy Park in Singapore.

No updates on asset monetisation 

  • Management offered no insights on its next asset-monetisation deal.
  • While it will continue to evaluate options, it appears in no hurry and will only strike a deal at the right price. 
  • With a low net gearing of 27% and cash balance of SGD3.3b, it is under no financial pressure. That said, we continue to believe that CityDev will do something about Nouvel 18 by year-end in order to duck hefty Qualifying Certificate penalties from Nov 2016.

Hotels not getting better; fight with costs 

  • 1H16 global RevPar for M&C hotels slipped 4.2% YoY in constant currencies. This dragged down M&C’s net income by 16.7% YoY. 
  • For the moment, CityDev will opt to improve its cost structure and operations rather than divest any of its hotels.

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-11
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.170 Same 9.170