City Developments - RHB Invest 2016-11-11: Time To Nibble In Again

City Developments - RHB Invest 2016-11-11: Time To Nibble In Again CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Time To Nibble In Again

  • We upgrade City Developments (CDL) to BUY as we see opportunity for long-term investors to accumulate amid recent share price weakness (-7% over the last one month). 
  • CDL has once again demonstrated its ability to monetise its assets via a third PPS structure, extending its funds under management to SGD3.5bn. 
  • Furthermore, its lowly-geared balance sheet presents it with the ability to capitalise on acquisition opportunities. 
  • BUY with revised RNAV-based TP of SGD9.36 (from SGD9.04, 10% upside).

Acquisition beckons with lightened balance sheet. 

  • The company’s net gearing would improve to 19% (2015: 26%) post divestments, giving a healthy debt headroom of >SGD3bn (assuming comfortable gearing of 50%). 
  • We expect sizeable acquisitions in the near-term, capitalising on market weakness.

Third PPS done... 

  • City Developments (CDL) successfully monetised its Nouvel 18 development in October, selling its 100% stake to high net worth Singaporean investors for SGD978m (SGD2,750psf), booking net gain of SGD27m. The move was positive as it not only de-risked CDL’s balance sheet from carrying sluggish high-end inventory, but also helped avoid ~SGD229m in qualifying certificate (QC) charges. 

...what’s next? 

  • We believe CDL can do similar profit participation securities (PPS) structures for its remaining high-end units, and in the longer term potentially monetise South Beach project, which has a GDV north of SGD3bn.

Encouraging sales at new launches. 

  • CDL’s new launch, Forest Woods (October) saw excellent take-up with 71% sold to date at ASP of SGD1,400psf. At Gramercy Park, it sold 38 of 40 launched units at SGD2,600psf. 
  • Hong Leong City Centre, Suzhou also saw strong demand, achieving CNY2.5b in sales value, providing strong earnings visibility for the coming quarters.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2016-11-11
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 9.36 Up 9.040