City Developments - DBS Research 2017-05-12: Progressing As Planned

City Developments - DBS Vickers 2017-05-12: Progressing As Planned CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Progressing As Planned

  • 1Q17 earnings in line.
  • New launches in Singapore seeing good buyer traction.
  • Land-banking a positive catalyst to stock price.
  • Raising TP to S$12.63 based on parity to RNAV.

Lifting TP to parity to RNAV at S$12.63. 

  • We remain buyers of City Developments (CDL) despite the recent share price rally, on expectations that CDL’s share price remains on an upward trajectory supported by positive catalysts coming from good sales momentum in 2017. 
  • We maintain our BUY call on CDL with a higher TP of S$12.63 based on a parity to RNAV (15% discount previously) or an implied 1.2x P/NAV.
  • With the Singapore property market in the nascent stages of recovery, CDL is largely seen as a proxy to Singapore residential market and has historically traded up to 1.2x-1.3x P/NAV.

Where we differ. 

Stronger property sales could lift earnings estimates higher. 

  • While CDL is largely the preferred stock by those who have gradually turned positive on the Singapore market, we believe that further upside surprises will come on the back of 
    1. better than projected sell-through rates at remaining unsold and un-launched inventories in Singapore and 
    2. stronger than projected sales at its International portfolio, mainly in the UK. 
  • Our estimates are generally higher than consensus on the back of our positive stance towards the group’s ability to drive good sales across its projects.

1Q17 results in line

  • City Developments Limited (CDL) reported 1Q17 net profit of S$85.5m, a 19% drop y-o-y. This is on the back of 8.4% rise in revenues to S$783.7m and a 2.2% rise in gross profit to S$365.9m.
  • The stronger topline was attributable to higher recognition of sales from the 
    1. progressive handover of units at Phase 1 Suzhou Hong Leong City Center (HLCC), 
    2. good take-up at Gramercy Park, which was offset by contribution from projects that received Temporary Occupation Permits (TOP) a year ago.
  • Hotel revenues remained stable while rental income dipped by 9% y-o-y mainly due to sale of properties to their fund structure (profit participating securities or PPS).
  • Net profit fell by 19% to S$85.5m, mainly due to absence of contributions from JV development projects, forex losses, and weak results from Millennium & Copthorne Hotels plc.

Review and Outlook 

Singapore residential : good start to 2017, new launches – New Futura & South Beach - to look out for in 2H17.

  • Performance for the group’s residential division in Singapore is going as planned with CDL reporting sales of 293 units (Forest Woods, 82% sold at an average selling price of S$1,400 psf, and Gramercy Park Tower 2, selling 16 out of 20 launched units). Total sales value was S$477.1m.
  • CDL’s existing unsold inventory of its various launched projects in Singapore amounted to close to 1,033 units, representing close to 16% of total units.
  • CDL’s effective stake in this unsold inventory is close to 598.3 units (vs 737.3 units in 4Q16).
  • With positive sales momentum at Gramercy Park in 1Q17, subject to market conditions ahead, we see the group launching the 124-unit New Futura at Leonie Hill Road, and South Beach Residences in 2H17.
  • We note that CDL has only 507k sqft (GFA of 0.9m sqft) of land available for sale which means that there is urgency to replenish its land bank in the medium term.
  • That said, CDL put in the winning bid for a new condominium site at Tampines Avenue 10, topping the second highest bidder by a slim 5.7%. The site is planned to be developed into a residential project with about 800 units and a child care centre.
  • The group will be commencing a refurbishment programme at Le Grove Serviced residences costing S$30m, which will see an increase in total units to 173 (from the current 97 units). The refurbished property is expected to complete in 2Q18.

International Residential – an uptick in sales.

  • China. Recorded maiden contributions from Phase 1 of Suzhou Hong Leong City Center (77% sold) which will continue into 1H17 given ongoing handovers of completed units. Sales for existing projects such as Hongqiao Royal Lake and Eling Residences has paused given soft demand. We understand that CDL is taking a more measured launch approach for both projects given the unique project attributes as both are in the highend segment where demand appears soft in the near term.
  • Australia. Total sales at Ivy and Eve remain flat at 95%, flat q-o-q and will compete in 1H2018
  • New launches in UK. UK pipeline projects largely are expected to complete from Q22017 and 2018 onwards and should be launched when completed.


  • Trading performance of M&C is stable – Topline was 16% higher y-o-y to GBP 223m while profit came in GBP 3m.
  • RevPAR (reported currency) was up 17.7%, due to a rebound in performance across its portfolio.
  • CDL will be starting on its AEI (asset enhancement initiative) programme across various hotels in order to improve the product mix to travellers.


  • We maintain our BUY call, and raise our TP to S$12.63 (from S$10.52), based on a parity to RNAV (15% discount previously) or an implied 1.2x P/NAV.

Key Risks to Our View

  • Decline in residential prices in Singapore. As a proxy to Singapore’s residential market, a deteriorating operating environment will cap share price performance.

Rachel TAN DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2017-05-12
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 12.63 Up 10.520