City Developments - CIMB Research 2016-11-10: A robust 3Q

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - A robust 3Q

3Q16 NP up on residential and one-offs. 9M16 NP deemed in line at 67% of FY16F.
Apart from Gramercy Park and ongoing projects, China and UK contributions lifted residential performance.
Lower rental on asset sales, hotel operations remain challenging.

Residential activities in Singapore and China to underpin 4Q earnings, more overseas project completions expected in FY17.
Maintain Add with an unchanged target price of S$10.40.

3Q16 net profit surged 60% yoy to S$170.3m on a 14% increase in revenue to S$922.8m. This is largely due to higher development profits and one-off S$45.5m gain from the sale of its 52.5% stake in City e-Solution. This was partly offset by lower hotel, rental and JV contributions.
9M net profit of S$409.4m makes up 67% of our full year forecast and we deem this as largely in line with expectations.

3Q residential PBT jumped 48% yoy to S$94.8m, thanks to progressive billings in Singapore as well as higher S$21m contributions (EBITDA) from international projects such as Hanover House in UK and additional 14 unit sales from Hongqiao Royal Lake.
In Singapore, there were also maiden contributions from Gramercy Park (22% sold). CIT has locked in S$622m worth of Singapore residential sales in 9M16, and is expanding further with the launch of Forest Woods in Oct (71% sold, ASP S$1,400 psf).

Rental PBT dipped 17% yoy to S$33.2m due to income vacuum from divested assets.
Office portfolio occupancy remained high at 96.2%. South Beach office and retail is fully leased and 70% of the retail outlets have commenced operations.
The rebranded JW Marriott Hotel South Beach is scheduled to open in Jan 17. Hotel PBT fell 7% yoy, adversely affected by competitive trading conditions in London, NY and Singapore as well as ongoing refurbishment works.

We expect residential activities to continue driving earnings. In addition to recognising S$18m gains from monetising Nouvel 18 through a residential PPS, it is scheduled to book in profits from Hong Leong City Centre P1 with pre-sales of Rmb2.12bn in 4Q16.
In FY17, four China and UK projects such as Hong Leong City Centre P2, Eling Residences and sites at Belgravia and Knightsbridge in UK, are expected to be completed and marketed.

Management said it will still accelerate its diversification initiatives.
CIT has a total landbank of 4.57m sq ft GFA, of which 75% are located overseas. Its fund management business is on track to hit its S$5bn target from S$3.5bn currently. With a 0.27x net gearing ratio, it is well positioned to tap new investment opportunities.
We tweak our FY16-18 EPS forecasts for one-off gains.
Our target price of S$10.40 is intact, pegged at a 25% discount to RNAV.
Capital recycling is a re-rating catalyst.
Downside risks from macro volatility

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-10

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