City Developments - CIMB Research 2017-12-11: Raises Offer Price For Millennium & Copthorne Hotels

City Developments - CIMB Research 2017-12-11: Raises Offer Price For M&C CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Raises Offer Price For M&C

  • City Developments (CIT) has revised its offer price for Millennium & Copthorne Hotels (M&C) to £6.20/share.
  • The deal could cost £681.9m, to be funded through internal cash and borrowings; we expect CIT’s gearing to increase to a still-low 0.31x.
  • The proposed exercise could create a more nimble and efficient platform in a competitive operating environment.
  • There is a potential 5% uplift to our RNAV if the deal is successfully completed.
  • Maintain Add call with a TP of S$13.15.

Increases cash offer price for M&C 

  • Further to its initial announcements in Oct 17, City Developments (CIT) has revised the offer price for the remaining 34.8% in Millennium & Copthorne Hotels (M&C) it does not own to £6.20/share comprising an offer price of £6/share and a special DPS of £0.2/share. 
  • The offer is at 38.8% and 37% premiums to M&C’s closing price on 18 Aug and the 1-month VWAP of 6 Oct, respectively, and is 1% better than the last traded price of £6.135. CIT said the offer is final and will not be increased.

Creating a more nimble and efficient platform 

  • The rationale for this exercise includes enabling M&C to be more nimble and efficient in a competitive operating environment, with the ability to leverage on CIT’s significant infrastructure and resources. M&C would also require capex to maintain its core infrastructure and customer service levels. 
  • The offer is conditional upon CIT obtaining more than 50% in nominal value and attached voting rights of M&C shares. Once the offer becomes unconditional, M&C is expected to apply for a delisting from the UKLA.

Transaction to cost £681.9m, could raise CIT’s gearing to 0.31x 

  • The transaction is expected to cost £681.9m (S$1,235m) and will be funded through CIT’s internal cash resources and borrowings. This could raise the group’s debt to equity ratio to 0.31x vs. 0.13x as at 3Q17. 
  • On a proforma basis, CIT’s post-transaction earnings and NTA could increase by 7% and 1.5%, respectively.

Potential 5% uplift to our RNAV if full ownership is obtained 

  • Once completed, the deal would likely accrete positively to our RNAV estimates. Our current RNAV for CIT assumes M&C’s value at £6.25, based on the previous traded price. 
  • Consolidating M&C at its latest book value of £8.20/share could potentially increase our RNAV estimate by c.5%, assuming a full 100% ownership.

Maintain Add rating 

  • We leave our current earnings and RNAV estimates unchanged for now, pending the successful completion of this exercise. 
  • City Developments’ share price has retraced 12% from the recent Oct high and is currently trading at close to the pre-initial announcement level. We believe the current share price has not reflected any potential accretion from this transaction. 
  • Maintain our Add call with an unchanged target price of S$13.15, pegged at a 20% discount to RNAV.

LOCK Mun Yee CIMB Research | http://research.itradecimb.com/ 2017-12-11
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 13.150 Same 13.150