City Developments - CIMB Research 2016-12-05: Increasing diversification

City Developments - CIMB Research 2016-12-05: Increasing diversification CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Increasing diversification

  • Growing overseas residential, Singapore portfolio substantially de-risked.
  • Rental and hotel contributions provide a recurrent income base.
  • Maintain Add with an unchanged RNAV-based target price of S$10.40.

Maintain Add call

  • CIT’s current valuations are even more attractive following the recent weakness in its share price. The share price discount to RNAV has widened to 40%, below the -1s.d. level. 
  • Going forward, we think capital recycling redeployment will continue to be a rerating catalyst. The balance sheet is strong with a low gearing ratio of 0.27x, thus providing CIT with a large capacity to tap new investment opportunities.

Accelerating momentum from overseas residential

  • Residential activities in Singapore and overseas will continue to remain the major driver to earnings growth. 
  • Apart from recognising profits from Hong Leong City Centre P1 with pre-sales of RMB2.12bn in 4Q16, 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 in 2017.

Singapore portfolio substantially de-risked 

  • In Singapore, it has locked in S$622m of sales in 9M16 and rising further with the recent launch of Gramercy Park and Forest Woods. 
  • CIT has effectively de-risked its Singapore residential portfolio from Qualifying Certificate (QC) penalties with the monetisation of Nouvel 18 from its third PPS platform. 
  • With respect to ABSD charges, only two developments could be impacted – The Venue (57-58% sold) and Commonwealth Towers (51% sold), if they are not fully sold by Sep 17 and Feb 18.

62% of EBITDA from recurrent sources, provide stable base

  • Recurrent income, derived from Singapore and overseas rental and hotel contributions, made up 62% of the group’s EBITDA for 9M16, providing the group with a stable income base. 
  • While we expect hotel operating conditions to remain competitive, the planned opening of the rebranded JW Marriott Hotel South Beach in Jan 17 should provide some inorganic expansion to this recurrent income source.

Accelerating diversification initiatives

  • Management said it will still accelerate its diversification initiatives. 
  • CIT has a total landbank of 4.57m sqft of GFA, of which 75% are overseas. Gradual roll out of these projects should extend residential earnings visibility. 
  • Also, its expanding fund management business is on track to hit the S$5bn target from S$3.5bn currently. 
  • Key risks are sustained global economic slowdown to further moderate hotel contributions and rising interest rates to erode mortgage affordability for its residential sales.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 10.400 Same 10.400