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

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Clouds Have Not Lifted

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.

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.

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.

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