City Developments (CIT SP) - Maybank Kim Eng 2017-08-11: Expect 2H Catch-Up

CITY DEVELOPMENTS LIMITED C09.SI

City Developments (CIT SP) - Expect 2H Catch-Up

While City Developments' 1H17 made up just 31% of our FY17E, we deem the results in line as 2H is expected to make up for the shortfall.
A strong rebound in home sales and an improving outlook for Singapore’s residential market led to provision write-backs.
Mr Sherman Kwek will be taking over as CEO at year-end and we expect a smooth transition.

We continue to see CityDev as a proxy for recovering home prices, which should provide re-rating catalysts.
Reiterate BUY and SGD12.05 TP, at a blended discount of 11% to RNAV of SGD13.48.

CityDev's 1H17 EPS is just 31% of our FY17E. Nonetheless, we expect stronger development recognition in 2H17 from its impending launch of New Futura and completion of projects such as The Brownstone. A 5% RevPAR improvement at M&C (MLC LN, Not Rated) on a constant-currency basis and a SGD22m write-back of loan provisions lifted its hotel PBT by 5% YoY in 1H17.
On the other hand, higher interest expense & depreciation at South Beach and other marketing costs weakened JV contributions.
AEI will start at Republic Plaza soon, costing SGD60m with an ROI target of 10%.
CityDev also sees more opportunities to unlock value of its assets through enbloc sales or the repurposing of non-core properties.

The group sold 691 homes worth SGD1.1b in 1H17, up from 1H16’s 324 worth SGD0.4b.
With The Venue Residences fully sold ahead of its ABSD deadline, it wrote back SGD15m of provisions. Management sees a stronger Singapore residential market and aims to launch New Futura in 2H17.
It will wait for better times to launch South Beach Residences and does not intend to relaunch W Residences just yet.

Deputy CEO Mr Sherman Kwek will become CEO after Mr Grant Kelly leaves to join another listed company in Melbourne at year-end. We expect a smooth transition.
Mr Kwek has reiterated his commitment to the group’s fund management platform established in recent years.

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/ 2017-08-11

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 12.050 Same 12.050