City Developments (CIT SP) - Maybank Kim Eng 2017-05-29: Positive Sentiment As Home Prices Turn Around

City Developments (CIT SP) - Maybank Kim Eng 2017-05-29: Positive Sentiment As Home Prices Turn Around CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Positive Sentiment As Home Prices Turn Around

Upgrade to BUY; Expect keen stock interest as Singapore home prices turn around 

  • We upgrade CDL to BUY and raise our TP to SGD12.05 (from SGD9.80) on higher RNAV and narrower target discount of 11%. 
  • The RNAV uplift stems from higher ASPs for its residential projects and narrower cap rates for its investment properties. 
  • With property prices at an inflection point, we expect RNAV discounts to narrow across the sector. 
  • With developments in Singapore at a quarter of its valuation, we see CityDev as a good proxy to a potential rebound in Singapore home prices.

Key changes and assumptions 

  • We raise our ASP assumptions for unsold stock by 0-11%. We build in forecasts for its new mass market project in Tampines at SGD1,150 psf.
  • In the high-end market, we value South Beach Residences at SGD3,350 psf. The lack of time pressure from QC or ABSD rulings should allow the developer to maintain a premium price point as the market recovers.
  • We lower our cap rate assumptions by 0-50bps and value its investment properties with cap rate assumptions of 3.25%-3.75% for office and 4.75%-5.00% for retail. This remains conservative when compared to cap rates of 3.2% for office and 4.2% for retail in recent transactions. 
  • Our SGD2,600 psf valuation for Republic Plaza remains undemanding considering its prime location and 999Y land tenure.
  • RNAV is raised from SGD11.92 to SGD13.48.

Investment thesis 

  • We see keen stock interest as home prices in Singapore should pick up in the year ahead. 
  • Furthermore, high prices seen in recent deals for commercial properties implies substantial revaluation surplus on its investment properties conservatively held at depreciated cost. We have built in execution risk from its overseas expansion with higher discount rates applied to these projects. 
  • Further upside could come from any plans to unlock hidden value within M&C that is conservatively held at market price in our valuation.

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/ 2017-05-29
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 12.05 Up 9.800