City Developments Limited - Phillip Securities 2018-05-15: Reaping The Rewards Of Successful Land-banking

City Developments Limited - Phillip Securities 2018-05-15: Reaping The Rewards Of Successful Land-banking CITY DEVELOPMENTS LIMITED SGX: C09

City Developments Limited - Reaping The Rewards Of Successful Land-banking

  • City Developments’ 1Q18 earnings below our expectations, at 10% of our FY18e NPAT, mainly due to timing differences in revenue recognition.
  • Robust demand for newly launched projects – New Futura and The Tapestry. Expect momentum to continue for 3 more launches from the Group in 2018.
  • Strategic expansion of land bank – Pipeline of c.3,000 units to be launched in FY18-19.
  • Group RevPAR recovery maintaining pace from FY17, up 3.5% y-o-y on a like-for-like basis.
  • Stronger GBP against major currencies impacted M&C’s total revenue, down 2.7%.
  • Maintain ACCUMULATE with unchanged Target Price of S$13.40 (based on 15% discount to RNAV).



The Positives


+ Robust demand for newly launched projects – New Futura and The Tapestry. Expect momentum to continue for 3 more launches from the Group in 2018.

  • Response to the two launches has been overwhelming with 97% of New Futura Phase 1 and 80% of The Tapestry Phase 1 sold within a few months from launch. Selling prices were also encouraging with The Tapestry’s average selling prices of S$1,310 representing a > 20% premium over the median transacted prices of vicinity projects within the last year. 
  • We estimate margins for this project to be as high as 40% with the Group’s favourable entry price in the land bid.

+ Strategic expansion of land bank – Total pipeline of c.3,000 units to be launched in FY18-19.

  • The Group won three GLS sites totalling c.S$1.2bn in 1Q18, two of which had close winning margins of 0.7%-4.7% over the next highest bidder. The Group will launch close to half of its pipeline in 2H18 and the rest in 1H19. 
  • We expect the Group’s launches in 2H18 to generate healthy buying interest before bulk of the enbloc supply kicks in.

+ Group RevPAR recovery maintaining pace from FY17, up 3.5% y-o-y on a like-for-like basis.

  • This compares with the 4% y-o-y increase for FY17. Australasia and Europe (excl. London) are the standout regions. On an overall basis, global RevPAR increased 3.2% in constant currency terms.



The Negatives


- Stronger GBP against major currencies impacted M&C’s total revenue, down 2.7%.

  • This is despite global RevPARs improving on a constant currency basis. We note that the Bloomberg GBP index is up c.4% y-o-y from 1Q17. Nonetheless, the stronger GBP against the SGD contributed to the higher hotel revenue when consolidated back to the Group reporting currency.


- Slowdown in China sales momentum. 

  • Sales momentum at the Group’s major projects in China, Hong Leong City Center (HLCC) in Suzhou and Hongqiao Royal Lake (HRL) is slower in the quarter. To date, c.9% of HLCC (154 units) and 53% of HRL (40 villas) remain unsold. 
  • With the shopping mall (80% pre-leased) in HLCC set to commence operation in 2Q18, we expect sales momentum in HLCC to recover, though sales of high-end villas in HRL should remain muted with the existing cooling measures.


Outlook

  • The outlook for City Developments’ residential segment is positive following the successful acquisitions of 3 sites in 1Q18. Strong launches for New Futura Phase 2 (60 units, this week), South Beach Residences (190 units, 3Q18), and West Coast Vale site (c.730 units, 4Q18) are catalysts for the stock. 
  • City Developments remains one of our favoured proxies to the uptick in the Singapore residential market, following the successful land banking efforts. 
  • Global tourism is on a gradual recovery track as evident from the sustained RevPAR recovery for the Group in 1Q18 at 3.5% y-o-y on a like-for-like basis.


Maintain ACCUMULATE with unchanged Target Price of S$13.40.

  • Our RNAV-derived target price represents 1.29x FY18e P/NAV, still below the +1S.D. level of 1.48 since post-GFC.





Dehong Tan Phillip Securities | https://www.stocksbnb.com/ 2018-05-15
SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 13.400 Same 13.400



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