CITY DEVELOPMENTS LIMITED
C09.SI
City Developments (CIT SP) - PPS 3 for Nouvel 18
Maintain HOLD; Key stock overhang lifted
- There was little surprise in CityDev’s announcement of its third PPS or profit participation securities. While the scheme’s ASP of SGD2,750 psf beat our SGD2,500 psf assumption, a mere 3cts uplift for its pro-forma NTA suggests our cost estimates may have been too low.
- We drop FY16 EPS by 2% and our TP slightly to SGD9.42, still based on a 20% discount to RNAV.
- While we believe successful navigation of its QC deadline has removed a near-term overhang, we maintain HOLD on limited stock catalysts.
- With SGD0.8b of cash unlocked, we believe the market will now focus on its capital deployment.
- We prefer CapitaLand (BUY, TP SGD3.93) for sector exposure.
Successful navigation of QC deadline for Nouvel 18
- CityDev has launched PPS 3, its third PPS platform, for Nouvel 18, a luxury condominium in the Ardmore area. This project faces its first Qualifying Certificate (QC) deadline in Nov 2016 and is liable for penalties of SGD38m/76m/115m over the next 1/2/3 years if it remains unsold.
- Clever structuring of the PPS has allowed it to offload the project to a group of Singaporean investors and avoid penalties. The property is valued at SGD965.4m or SGD2,750 psf in this deal.
Caps downside, with potential upside…
- The deal structure has capped CityDev’s maximum exposure to this project at SGD140m, which is its capital contribution via a 7-year note.
- However, if the homes are eventually sold at higher prices, it will retain an undisclosed share of the upside after its PPS investors receive their preferred return of 5%.
…but how will it re–deploy the unlocked capital?
- Subtracting professional fees, working capital retained by the holding company and its capital contribution of SGD140m, we estimate that CityDev will receive net proceeds of SGD0.8b.
- Its net gearing should dip from 0.28x to just 0.10x by end-2016, while its cash hoard should climb above SGD5b.
- With this large cash build-up, we believe the market will await its capital deployment to assess its outlook.
Swing Factors
Upside
- Monetisation of investment assets conservatively held at cost.
- Renewed interest in Singapore’s high-end residential market.
- Strong rebound in home sales.
Downside
- Sharp fall in home prices, necessitating impairment charges.
- Poor execution of overseas projects. Recent ventures into China, the UK and Japan have raised risk profile.
- Sharp increase in interest rates could hit demand for properties and drive down asset prices.
Derrick Heng CFA
Maybank Kim Eng
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http://www.maybank-ke.com.sg/
2016-10-21
Maybank Kim Eng
SGX Stock
Analyst Report
9.42
Down
9.430
