City Developments - RHB Invest 2017-05-12: Take Profit As Positives Are Priced In

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Take Profit As Positives Are Priced In

CDL’s share price has surged +31% YTD, outpacing the STI by 18% and is hovering close to our TP.
While we continue to remain positive on its operations, we believe its share price has factored in near-term positives from the pick-up in sales volume and its acquisition potential.

Downgrade to TAKE PROFIT (from Buy). A good re-entry point would be below SGD10.50.
Key catalysts that can change our view are a sharp re-bound in Singapore’s residential property prices and sizeable accretive M&A deals.

City Developments’ (CDL) Singapore project residential sales more than doubled YoY to 293 units in 1Q17 (1Q16: 145 units), as its sales value more than tripled to SGD477.1m (1Q16: SGD145.8m).
The strong sales were driven by a good take-up for Gramercy Park, Forest Woods, Commonwealth Towers and its executive condominium projects. Its sales momentum is expected to remain strong in the coming quarters, with improved buying sentiment while prices are likely to remain flat on the back of higher supply.
Going forward, CDL expects to launch the New Futura and South Beach Residences projects in 2H17.

In May 2017, CDL topped eight other bidders to acquire a residential land parcel in Tampines Avenue 10, with a bid of SGD370.1m or SGD 565.4psfppr. The acquisition comes after more than a year, with the last one being the recently-launched Forest Woods site in Nov 2015.
For the Tampines site, we expect its breakeven point to be around SGD950-1,000psf and selling prices upwards of SGD1,100 psf. The bid, although slightly bullish when compared to selling prices in nearby launches, is well-timed in our view, with overall sales volumes picking up and a likely bottoming of Singapore residential prices by the end of this year.

Besides acquiring residential plots in Singapore, CDL has also been active in the overseas market, particularly in the UK and China. YTD, it has pumped in ~SGD400m across these two markets, acquiring residential, commercial and hotel properties.
With net gearing still remaining low at 16%, we expect management to continue on its acquisition spree when suitable opportunities arise. Key acquisition markets are likely to be Singapore, the UK, China and Japan.

In 1Q17, CDL’s listed hotel subsidiary, Millennium & Copthorne (M&C) (65% stake) registered a 4.6% increase in overall RevPAR (constant currency terms).
EBITDA contribution however was impacted due to forex impact (weak GBP) and a weaker performance in New York and Singapore.
We expect its overall hotel performance to stabilise and improve later this year, with the completion of asset enhancements across its various hotels and the improving global economic outlook.

TAKE PROFIT, with an unchanged TP of SGD11.30 pegged to a 20% discount to our RNAV of SGD14.12.
Key re-rating catalysts are an earlier-than- expected rebound in Singapore’s residential property prices, and accretive and sizeable M&A transactions.
A key downside risk is the prolonged decline in property prices and the introduction of additional policy measures.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-05-12

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