City Developments - CIMB Research 2017-11-09: Stable Showing

CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Stable Showing

City Developments' 9MFY17 net profit was below our forecast, making up 56% of FY17F projections.
Planned new launches in 2018 should extend residential development visibility.
Rental income stable; hotel operations experience slight RevPAR expansion.

City Developments (CIT) reported an 8.3% yoy decline in net profit to S$156.1m on a 6.5% lower revenue of S$863.1m.
The decline was due to a smaller pre-tax divestment gain of S$38m from the sale of one office building in Osaka and lower residential contributions, partly offset by higher hotel and rental income.
For the 9M, net profit of S$351.5m was 14.2% lower yoy and made up 56% of our full-year forecast.

3Q property development profit of S$86m was 9.5% lower yoy and continued to make up the bulk 35% of PBT. Sales remained healthy as the group sold 365 units in Singapore valued at cS$0.6bn in 3Q.
Gramercy Park is more than 89% sold while Forest Woods is 90% taken up. The Criterion EC is now 80% pre-sold.

Looking ahead, CIT is expected to book in profits from the Brownstone EC (completed in Oct 17) in addition to progressive billings from ongoing projects. It plans to launch 3 projects totalling 1,175 units, by 1H18, including New Futura, Tampines Ave 10 and South Beach Residences.
CIT also successfully tendered for the Amber Park enbloc site for $906.7m. This will continue to extend residential earnings visibility as well as enable it to leverage on the recovery in the private residential market.

Hotel PBT rose 34% yoy to S$74m due to a 2.5% higher group RevPAR in 3Q, contributions from the Grand Millenium Auckland (from end 16) as well as higher land sales.
In Oct 17, CIT announced a possible recommended cash offer for the remaining stake in listed M&C that it does not own and is required to announce its intent by 8 Dec 17. This will enable CIT to provide M&C with direct access to its larger infrastructure and to leverage on CIT’s network and financial resources.

On the leasing front, rental PBT jumped significantly yoy to S$72m, thanks to the S$38m gain from the sale of the Osaka office building.
In terms of operations, office portfolio occupancy remained at 92.5%, while retail portfolio is 97.5% leased. It has another 32% of office and 39% of retail NLA to be renewed over 4Q17-2018.

Overseas projects continue to see higher sales qoq with the Hong Leong City Centre P1 and P2 now 83% and 49% sold. The Park Court Aoyama The Tower is more than 75% booked.
The group recently divested 70% and 50% of the Huang Huayuan and Eling Residences, respectively, to China Vanke for a total of RMB986m, to enable the group to leverage on the latter’s local experience and expertise.

We have tweaked our FY18-19 EPS estimates to factor in contributions from the recently purchased Amber Park enbloc site.
Our RNAV is raised by 5% to S$16,44 as we impute the latest market price and TP for listed Millennium & Copthorne Hotels (M&C) and CDL Hospitality Trusts.
Our higher TP of S$13.15 is based on an unchanged 20% discount to RNAV.
We maintain our Add call as CIT remains lowly geared at 0.13x at end-Sep 17 and has a large balance sheet capacity for further acquisitions.
Downside risk include slower-than-expected deployment of capital.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-11-09

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