City Developments - CIMB Research 2017-08-14: Good 1H Residential Sales

City Developments - CIMB Research 2017-08-14: Good 1H Residential Sales CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Good 1H Residential Sales

  • Net profit at half-time slightly below expectations at 35% of our FY17F forecast.
  • Robust residential sales in 1H17.
  • Rental income dragged by asset sales, hotel operating environment remains challenging.
  • Low gearing of 0.16x, foray into luxury senior housing in Australia.
  • Maintain Add with a higher TP of S$12.54.

2Q/1H17 results highlights 

  • City Dev reported 2Q17 and 1H17 net profits of S$109.9m (-18% yoy) and S$195.3m (- 18% yoy) respectively. The latter was slightly below our expectations, making up c.35% of our FY17F estimate. 
  • The lower yoy performance was due to a high residential base in 2Q16, partly offset by higher hotel contributions. 
  • The group declared a special interim DPS of 4 Scts. 
  • The group also announced the resignation of CEO Mr Grant Kelley and the appointment of Mr Sherman Kwek as CEO-designate.

Residential sales volume picking up pace 

  • City Dev's 2Q residential PBT fell 21% yoy to S$83.7m, mainly due to a high base in 2Q16, partly offset by a S$15.4m reversal of provisions made earlier and profits from Hongqiao Royal Lake Shanghai and Hong Leong City Centre Suzhou. 
  • In 1H, the group sold 691 units worth S$1.15bn, higher than the 324 units (S$386m) in 1H16. By the end of 2Q, Venue Residences was fully sold, while Gramercy Park was 63% sold. 
  • It plans to launch New Futura in 4Q17 and the recently-acquired Tampines site in 1Q18.

Rentals dragged by asset sales 

  • City Dev's 2Q rental PBT dipped 11% yoy due to an income vacuum with the sale of Exchange Tower in Bangkok and closure of Le Grove for renovation works. Occupancy of its office and retail properties stood at 96.4% and 98.1% respectively. 
  • It is planning a S$60m AEI works for Republic Plaza from 1Q18-1H19 from which it targets a 10% return. 
  • Meanwhile, hotel operations benefited from one-offs, while operating conditions remain challenging, particularly in New York (due to high costs) and North Asia (geopolitical tensions).

Slower pace of overseas residential contributions 

  • Whilst the launch of the Belgravia and Knightsbridge projects in UK have been pushed back to 1Q18, the Teddington Riverside development is on track for launch in 2H17, where an initial 57 of the total 240 units will be marketed. 
  • In China, Hong Leong City Centre Suzhou is 73% sold, while Eling Residences in Chongqing is progressing slowly. Huang Huayuan is scheduled for launch only in 2019.

Lowly geared balance sheet 

  • City Dev's balance sheet remains lowly geared at 0.16x as at 2Q17. 
  • Management indicated it would continue to deploy capital into Singapore as well as look for strategic opportunities overseas. It could also look to unlock value of existing older assets such as Tanglin Shopping Centre, Katong Shopping Centre, the Delphi and Arcade. 
  • It has made a maiden foray into the luxury senior housing sector in Australia via a collaboration with Waterbrook Lifestyle Resorts to develop a luxury retirement village in Bayview, Sydney.

Maintain Add 

  • We leave our FY17-19F EPS estimates unchanged but raise our RNAV to S$15.67 as we adjust the investment property portfolio cap rates following the recent round of cap rate compression. 
  • Accordingly, our TP is raised to S$12.54, premised on a 20% discount to RNAV
  • We continue to like City Dev for its robust balance sheet and ability to deploy capital into new investments. 
  • Downside risks to our Add call include slower-than-expected deployment of capital.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-08-14
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 12.54 Up 11.630