City Developments - CIMB Research 2017-02-23: Strong boost from China residential

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Strong boost from China residential

City Developments (CIT) reported 4Q and FY16 net profit of S$243.8m/S$653.2m, -41%/-16% on a high base from exceptional gains from PPS2 in previous periods.
Nonetheless, FY16 net earnings were still 7% ahead of our estimate thanks to one-off gains of S$149m in FY16 coming from PPS3, sale of Exchange Tower in Thailand and divestment of stake in City eSolutions.
Stripping out exceptionals, bottomline would have been fairly flat yoy. The group has proposed a final total DPS of 12 Scts, bringing FY16 DPS to 16 Scts.

4Q residential PBT doubled to S$242.6m with progressive billings from Singapore and maiden contribution from Suzhou Hong Leong City Centre P1 (SHLCC P1) with a handover of 814 units. An estimated 1,038 units in P1 were sold and are expected to be delivered progressively. SHLCC P2 also generated an additional Rmb502m of sales.
In Singapore, recognition came from Gramercy Park, Jewel @ Buangkok and other JV projects. Maiden billings from Forest Woods (74% sold) are expected from FY17.

FY16 hotel PBT fell 32% yoy to S$115.7m, despite a smaller 3.8% decline in revenue, due to challenging operating conditions, particularly in New York and Singapore, AEI works at select hotels and pre-opening costs from JW Mariott South Beach. However, 2017 is off to a more positive start with its global REVPAR rising 4.5% in Jan.
M&C is taking steps to increase revenue and profit across its portfolio, including the ongoing restructuring of its sales team and strategy, and improving e-commerce capability.

Residential activities, particularly in overseas projects, are likely to continue to drive earnings. In addition to the completed SHLCC P1, it expects P2 to be completed in 4Q17; while in the UK, the Belgravia and Knightsbridge is scheduled to be completed in 2Q17. We expect progressive sales and recognition of these contributions to underpin earnings.
In Singapore, plans to launch Gramercy Park P2 and New Futura as well as progressive sales from ongoing projects should add to its bottomline.

Balance sheet is strong with net gearing of 16%.
Management expects to continue to deploy capital, particularly in its core overseas markets such as the UK and China. It recently purchased a Shanghai commercial property for Rmb900m as well as took stakes in Distrii, a leading co-working space provider, and mamahome, an online apartment rental platform in China.
The group is on track to reach its S$5bn AUM target by 2018 to grow its fee income platform.

We tweak our FY17/18F EPS by -1.5%/10.9% and raise our RNAV to S$14.01. Our target price of S$10.51 is based on a 25% discount to RNAV.
Deployment of capital into new investments is a key catalyst.
Downside risks are likely to come from macro volatility, particularly in overseas markets.

LOCK Mun Yee CIMB Research | Yeo Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-02-23

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