City Developments Limited - OCBC Investment 2017-05-15: Muted Set Of 1Q17 Results

City Developments Limited - OCBC Investment 2017-05-15: Muted Set Of 1Q17 Results CITY DEVELOPMENTS LIMITED C09.SI

City Developments Limited - Muted Set Of 1Q17 Results

  • 1Q17 PATMI down 18.9%.
  • Tracking below expectations.
  • Downgrade to HOLD on valuation grounds.

First quarter results softer than expected 

  • 1Q17 PATMI decreased 18.9% YoY to S$85.5m due to the absence of contributions from two JV projects (Bartley Ridge and Echelon) which achieved TOP in 2016, exchange losses, lower investment income from the realization of an investment in Real Estate Capital Asia Partners (a private real estate fund) and softer contributions from M&C. 
  • We understand that the M&C’s numbers were affected by losses in its New York hotels, increased room supply, declining corporate demand in Singapore and an unfavorable FX impact from the decline of the pound Sterling. 
  • In terms of the topline, 1Q17 revenues grew 8.4% YoY to S$783.8m mainly due to stronger performances from the property development division given the progressive handover of units in Phase 1 of Suzhou Hong Leong City Center (HLCC) and strong sales at Gramercy Park, partially offset by the absence of contributions from HAUS@SERANGOON GARDEN and Jewel @ Buangkok which attained TOP last year. 
  • We deem this set of results to be somewhat below our expectations and 1Q17 PATMI constituted only 13.6% of our full year forecast, which we adjust downward by 11.2%.

HOLD with unchanged FV 

  • The group sold 293 units worth S$477.1m in Singapore over 1Q17, up significantly YoY versus 145 units (S$145m) in 1Q16. Depending on market conditions, management intends to launch the 124-unit New Futura at Leonie Hill Road in 2H17. 
  • In China, CityDev has sold 77% of the 1,374 residential units in Phase 1 of HLCC while 43% of the 430 units in Phase 2 have also been sold. 
  • The management team has been active in 1H17 to date and has deployed about S$770m in capital for acquisitions in China (Distrii - China’s largest co-working operator, Meidao Business Plaza in Shanghai), the UK (Ransomes Wharf in London, The Lowry Hotel in Manchester) and in Singapore (a Tampines Ave 10 site). 
  • Our fair value estimate remains unchanged at S$10.50 but, given the strong run-up in the group’s share price year to date, we downgrade our rating to HOLD on valuation grounds.

Eli Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-05-15
OCBC Investment SGX Stock Analyst Report HOLD Downgrade BUY 10.500 Same 10.500