City Developments Limited - Phillip Securities 2016-11-11: Continued momentum in development sales

City Developments Limited - Phillip Securities 2016-11-11: Continued momentum in development sales CITY DEVELOPMENTS LIMITED C09.SI

City Developments Limited - Continued momentum in development sales

  • City Developments’ (CDL) share of launched but unsold units in Singapore dropped 13.8% QoQ to 668.3 units as at 3Q16.
  • Balance sheet continues to be strong with S$3 billion in cash and 27% net gearing.

Encouraging take up of units at soft launch of Gramercy Park but not expecting New Futura to be launched in the near term 

  • CDL launched and sold 38 out of 40 units at the 174-unit Gramercy Park at an ASP of S$2,600psf which was within our expectations. 
  • Management intends to launch the remaining 134 units at a later date which we believe is likely to be after the overhang of unsold units in the Core Central Region ease further. CDL has ample time to launch these units since QC extension fees will only be due in May 2018. 
  • Additionally, the Group still has an unlaunched 124-unit development project, New Futura, which is 700 metres away from Gramercy Park. 
  • We are of the view that the launch of New Futura could only happen after the adjacent development, OUE Twin Peaks, which still have another 40% unsold units gets more substantially sold.

South Beach Tower retail units are fully leased and hotel operation is slated to commence in January 2017 

  • The 32,000 square feet of retail and 510,000 square feet of office space at its Joint Venture mixed development, South Beach Tower, have been fully leased. Following the re-branding of South Beach Hotel into The JW Marriott Hotel Singapore South Beach, hotel operations are expected to commence in January 2017. 
  • Management mentioned that they will “evaluate and review market conditions” to launch the 190-unit South Beach Residences.
  • We are of the view that the launch is unlikely to happen in the near term or at least until there are significant improvements in market conditions considering that CDL is not in a rush to clear these units since mixed developments are not subjected to the clawback of ABSD remissions and CDL has a strong balance sheet to hold onto them.

Sales for China residential projects continue positive momentum 

  • Sales for Hong Leong City Center in Suzhou (CDL’s biggest project in China, c.56% of total China projects RNAV) remain buoyant with all 156 units of their Phase 2 Residential Tower launch sold within an hour. 
  • Sales of residential projects in Shanghai, Suzhou and Chongqing continue to register y-o-y growth in total floor area sold despite rounds of cooling measures, with majority of cities continuing to see price increases this year. 
  • We expect the Group’s China projects to continue their positive sales momentum due to their favourable locations and positive macro developments in some of the cities such as Chongqing.

Investment Action

  • While we pre-empt price cuts in certain development projects, the impact on profitability is limited considering these projects are > 50% sold. 
  • Overall, we remain optimistic about CDL’s property development segment as unsold units continue to move gradually. 
  • We also think the pessimism surrounding CCR properties has been overblown as recent transactions suggest slight discounts from current prices is sufficient to bring back a good volume of value investors. We remain confident of the Group’s overseas development strategies, especially in China. 
  • We maintain our ‘Accumulate’ rating with an unchanged fair value of S$9.98 based on our FY17 RNAV estimates.

Peter Ng Phillip Securities | Dehong Tan Phillip Securities | http://www.poems.com.sg/ 2016-11-11
Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 9.980 Same 9.980