City Developments - DBS Research 2018-03-08: Undisputed Residential Champion

City Developments - DBS Vickers 2018-03-08: Undisputed Residential Champion CITY DEVELOPMENTS LIMITED C09.SI

City Developments - Undisputed Residential Champion

  • Top developer in Singapore residential market with S$6bn in unsold stock, contrary to market perception.
  • Strong presales at upcoming launch of The Tapestry to drive share price higher.
  • Renewed focus on growing fund management business to drive recurring income and crystallise NAV.

Maintain BUY; Target Price revised to S$15.40. 

  • We maintain our BUY call on City Dev with Target Price of S$15.40 as we fine-tune our residential sales and investment property valuation assumptions. 
  • With the Singapore property market in the nascent stages of an upturn, City Dev is largely seen as a key proxy to upward trends in the Singapore residential market and has historically traded up to 1.2-1.3x P/NAV, which our Target Price implies.

Where We Differ:

Among the highest Target Price in the street. 

  • We believe that catalysts abound for the group after its successful land-banking activities which added five residential sites over the past year. 
  • Based on our analysis, City Dev is the developer with the largest amount of unsold inventory on the books, estimated at close to S$6bn comprising c.3,600 units. These properties are located across various segments of the property market which allow the group to capture the widest market share in 2018. 
  • The strong pre-sales of upcoming launch – The Tapestry – will be a catalyst for further re-rating.

Potential catalyst: 

Strong pre-sales at launch projects/landbanking activities.

  • Growth in fund management platform a key focus. 4Q17 results were in line with expectations but one key focus was the company's renewed plans to accelerate its efforts to develop a fund management business, targeting to hit US$5bn by 2023.
  • The strategy is to drive recurring income and to achieve a more efficient capital structure and offer recycling opportunities for the group to deploy capital more actively.


  • We maintain our BUY call, Target Price of S$15.40, based on a parity to RNAV, which implies 1.2x P/NAV.

Key Risks to Our View

  • Non-completion of privatisation. The inability to complete the privatisation exercise could limit potential upside to RNAV.

WHAT’S NEW - Singapore largest land bank 

Undisputed leader in Singapore residential market. 

  • Since early 2017, the group has turned more active in building its residential land bank in Singapore After beating the competition in three recent land tenders in January - February 2018, City Development Limited (City Dev) remains the developer with the highest market share in terms of unsold stock in its books. We believe that the group is well positioned to leverage on the residential upcycle with over c.2,750 units in the pipeline from unlaunched residential projects. These properties are across the suburban, mid- to luxury-end segments.
  • Residential sales momentum has been strong for the group, achieving 1,171 units with sales value of S$1.93bn. From the group’s portfolio of launched projects in Singapore, the group has a further 232 unsold inventory on its books (effective stake of 178 units). 
  • Based on estimates, the total unsold inventory (launched and unlaunched projects) could be worth up to S$6bn. This will make City Dev the group with the largest share of unsold inventory in the market.

4Q17 results in line. 

  • City Dev reported a 24% drop in PATMI of S$187m (4Q16 of S$244m) and S$538.2m for FY17. This was despite a 133.8% rise and 2.0% dip in revenues to S$1,327m (4Q17) and S$3,828m (FY17) respectively. 
  • Profit from operations dipped by 29.8% to S$225.8m (4Q17) and fell by 13.4% to S$799.8m (FY17). The drop in operational profits was mainly due to a high-base effect in 2016 where performance was boosted by sizeable contributions from Hong Leong City Center (HLCC) in Suzhou, higher profit margin projects like Coco Palms, D’Nest and Lush Acres Executive Condominiums (EC), and gains from selling selected properties into the group’s third Profit Participation Securities (PPS).

Gearing remains conservative. 

  • City Dev’s net gearing ratio remains low at 9% with strong reserves of S$4bn. This financial headroom allows the group to undertake any opportunistic acquisitions in the future.

Higher dividends. 

  • The group proposes a higher final dividend per share of 8 Scts (vs 6 Scts in FY16), bringing total dividends to 18 Scts per share (16 Scts in FY16).

Fund management. 

  • The group intends to accelerate its efforts to develop a fund management business to drive recurring income and to achieve a more efficient capital structure and offer recycling opportunities for the group to deploy capital more actively. 
  • With three PPS already under the fund management platform, the group intends to launch more coming led funds or JV, acquire platforms and manage third-party capital. The group aims to build an AUM of US$5bn by 2023.

Derek TAN DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2018-03-08
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 15.40 Up 14.030