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

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).

Strong residential sales despite challenges, acquisitions beckon. 

  • 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.

“5-5-5 strategy” on target. 

  • 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.

Hotel operations to stabilise in 2017. 

  • 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

  • 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