City Developments(CIT SP) - Maybank Kim Eng 2017-11-09: Surge In Housing Sales

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CITY DEVELOPMENTS LIMITED C09.SI

City Developments(CIT SP) - Surge In Housing Sales

Fine-tuning EPS on slight miss; Maintain BUY 

• 9M17 was a slight miss as the launch of New Futura was delayed to 1H18.
• CityDev has capitalised on strong home buying sentiment in Singapore with sales value tripling to SGD1.8b in 9M17. 
• We fine-tune our model to push out the launch of New Futura and incorporate the partial divestment of Eling Residences and Huang Huayuan. This led to EPS revisions of-15%/-2%/+9% to FY17-19E. We also update our RNAV estimates to reflect the latest market value of M&C (MLC LN, Not Rated) and fine-tune its carrying value. Accordingly, we raised our RNAV-based TP marginally to SGD13.80. Maintain BUY.

Sales rebound on stronger home buying sentiment 

• CityDev reported 9M17 net profit of SGD351m (-14% YoY). This is below our expectation at 55% of our full-year estimate as the launch of New Futura had been pushed out to 1H18. 
• CityDev capitalized on the strong home buying sentiment by selling 1,056 units worth SGD1.8b in Singapore (9M16: 482 units worth SGD0.6b). We expect the completion of 98% sold The Brownstone (EC) to provide a significant lift to sales in 4Q17.
• CityDev will continue to ride on the rebound in Singapore’s property market with the launch of New Futura, South Beach Residences and Tampines Ave 10 project in 2018.

Deadline to make M&C offer extended 

• CityDev is still mulling over a potential offer for M&C and will announce a firm intention by 8 Dec. Interestingly, the market appears to be pricing in a higher offer price with the stock trading above the potential offer price of 552.5pence at 625pence.

Partial divestment of Eling and Huang Huayuan 

• CityDev recently announced the divestment of partial stakes in two Chongqing projects, a 50% stake in Eling Residencesand 70% stake in Huang Huayuan, to China Vanke for CNY986m. It expects to complete the divestments in Dec 2017 and will look to book a divestment gain in 4Q17.

Swing Factors

Upside

• Monetisation of investment assets conservatively held at cost.
• Renewed interest in Singapore’s high-end residential market.
• Strong rebound in home sales.

Downside

• 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/ 2017-11-09

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 13.80 Up 13.600