City Developments (CIT SP) - Maybank Kim Eng 2017-02-23: Good showing in a tough market, but fairly valued

City Developments (CIT SP) - Maybank Kim Eng 2017-02-23: Good showing in a tough market, but fairly valued CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Good showing in a tough market, but fairly valued

Maintain HOLD; TP SGD9.00 – prefer UOL 

  • CDL’s 4Q16 was in line. Strong overseas earnings were partly offset by impairments made to its hotels. 
  • Management will continue to hunt for deals as market uncertainties could provide opportunities to put its strong cash hoard to work. 
  • We raised FY17-18 EPS by 13% to reflect adjustments to residential sales timing and for stronger hotel profits. 
  • We roll forward our valuation basis and raised TP to SGD9.00, at an implied 25% discount to RNAV of SGD11.92. Maintain HOLD as valuations look fair.

Results in line; Strong overseas contributions 

  • FY16 net profit of SGD653m was in line at 90% of our forecast as we attribute the slightly lower earnings to sales timing and a SGD38m impairment made for its hotels. 
  • Strong contribution from its property development business overseas provided a lift in 4Q16. 
  • CDL wrote-back SGD5.7m of allowances made for development properties due to stronger sales at The Venue Residences
  • Despite a poor showing for its hotel operations over the past year, CDL guides for stronger hotel performance in the year ahead. A recent management shakeup and the 4.5% improvement in Jan-17’s Global RevPar underpinned its optimism.

Launch pipeline in Singapore 

  • With 56 out of the 87 units of Tower 1 already sold, CDL plans to launch the rest of Gramercy Park in 3Q17. This will be followed by the launch of New Futura in 2H17. The South Beach Residences may also be launched if market conditions are favourable. 
  • Despite recent assertions by the government that cooling measures will remain in place, management reiterates its view that a review will eventually happen.

Seeking opportunities to deploy strong cash hoard 

  • CDL has deployed SGD2.5b of capital overseas till date and is on track to meet its SGD5b acquisition target by 2018. 
  • With a strong cash balance of SGD3.7b and low net gearing of just 0.18x, it will continue to explore avenues to deploy its capital. 
  • It sees opportunities from the uncertain global market. Apart from traditional property deals, it is also on the lookout for deals complementary to its core business. For example, it took equity stakes in two China-based businesses - mamahome, an online apartment rental platform, and Distrii, a co-working space operator.

Swing Factors


  • Monetisation of investment assets conservatively held at cost.
  • Renewed interest in Singapore’s high-end residential market.
  • Strong rebound in home sales.


  • Sharp fall in home prices, necessitating impairment charges.
  • Poor execution of overseas projects. Recent ventures into China, the UK and Japan have raised risk profile.
  • Sharp increase in interest rates could hit demand for properties and drive down asset prices

Derrick Heng CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-23
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.00 Up 8.900