City Developments (CIT SP) - Maybank Kim Eng 2017-05-12: Rallying Ahead Of Fundamentals

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Rallying Ahead Of Fundamentals

A slow start to the year with 1Q17 net profit at just 14% of our full-year estimate. However, we expect future launches to lift earnings in the coming quarters.
The surprise easing of cooling measures on 10 March has lifted investor sentiment. While we believe the overall impact of the easing is small as key measures holding down demand remain, buoyant sentiment could see near-term upside to home prices and sales volumes.

Our sensitivity analysis shows that a 20% increase to our ASP assumptions could drive a 5% RNAV upside.
Maintain HOLD with unchanged TP of SGD9.80 (18% discount to RNAV of SGD11.92).
We see limited upside after the strong rally YTD.
Downside risks from sharp interest rate hike and large fall in property prices.
Prefer UOL (UOL SP, CP SGD7.10, BUY, TP SGD7.93) for sector exposure.

1Q17 net profit of SGD85m made up only 14% of our full-year estimate. However, we expect stronger development earnings from future launches to lift earnings in the coming quarters.
Management is using the weaker occupier market to spruce up its properties with asset enhancement initiatives (AEI) for Le Grove Serviced Apartments and some of its office buildings, including Republic Plaza.

Residential sales in the local market improved with the group selling 293 units worth SGD477m in the quarter (1Q16: 145 units worth SGD146m).
Notably, 90 out of the 174 units at Gramercy Park have been sold with the developer raising prices for the second phase of the project. New Futura is due for launch in 2H17 as planned. However, management is now considering its options for the South Beach Residences and may pursue a rental option instead. Unlike most others, this development does not have a project deadline.

The group has deployed SGD770m into five acquisitions since the start of the year and continues to seek out new acquisitions to put its balance sheet to work.
In the local market, it replenished its residential landbank in May with a new mass market condominium site at Tampines Avenue 10.

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/ 2017-05-12

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 9.800 Same 9.800