City Developments - RHB Invest 2017-02-24: Nicely Poised for Acquisitions

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Nicely Poised for Acquisitions

With a lightened balance sheet, we expect CDL to pounce on acquisition opportunities both locally and overseas.
Following strong sales in Singapore and overseas, we expect it to continue to do well in 2017.
Recurring income is set to receive a boost, with South Beach becoming fully operational.
Hotel operations should stabilise, after a challenging 2016.

CDL remains our preferred pick for its asset monetisation ability, nimble capital management and acquisition potential.
Maintain BUY, raising TP to SGD10.50 (vs SGD9.70, 9% upside).

We expect City Developments (CDL) to grow through acquisitions in 2017, with lowered net gearing of 16% offering a sizeable war chest of over SGD3bn.

CDL’s diversification strategy of having SGD5bn of assets in five overseas markets (Australia, the UK, China, Japan and US) by 2018 is on track, with SGD2.5bn in acquisitions made so far.
On the fund management side, CDL has built up a portfolio of SGD3.5bn via three profit participation securities (PPS) and is on target to achieve SGD5bn by 2018.
We believe CDL can potentially form a PPS structure for its remaining high-end units, and in the medium term, monetise its South Beach project that has GDV north of SGD3bn.

CDL’s listed hotel subsidiary, Millennium & Copthorne (65% stake), had a weak 2016. Overall RevPAR fell 2.3%YoY, due to weaker performance from New York and Singapore and UK hotels.
With asset enhancement works completed and demand showing signs of pick-up, we expect hotel performance to stabilise.

Maintain BUY, with a higher TP of SGD10.50, pegged at a 25% discount (from 30%) to our revised RNAV of SGD14.01.
We lowered our RNAV discount to factor in a recent spike in interest in M&A transactions in the real estate sector, as well as the potential bottoming of Singapore property prices in 2017.
We have lowered our FY17F-18F net profits by 8% and 10% respectively, as we expect delays in launches for its UK and China projects.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-24

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 10.50 Up 9.700