City Developments - Maybank Kim Eng 2018-07-06: Policy Overhang

City Developments - Maybank Kim Eng Research 2018-07-06: Policy Overhang CITY DEVELOPMENTS LIMITED SGX: C09

City Developments - Policy Overhang

Downgrade to HOLD with lower Target Price of SGD10.40

  • We downgrade CityDev to HOLD from BUY with a lower Target Price of SGD10.40, now based on a 25% discount to RNAV vs RNAV parity earlier.
  • We cut RNAV by 2% to SGD13.91 after reducing our ASPs. We cut FY18-20E EPS by up to 11%. That said, we expect its diversified income to cushion headwinds in the residential segment.
  • Stock is also trading close to 1SD below its 10-year average, which we think has priced in the near-term policy overhang.

De-facto housing proxy

  • CityDev is the de-facto proxy for the sector. With Singapore’s residential market accounting for one-third of its valuation, we expect the recent surprise policy tightening to weigh on its near-term performance.

Cut ASPs

  • With 5-10% increases in the ABSD for property investors, we expect developers to lower their ASPs to stimulate demand. We cut ASPs for CityDev’s high-end projects, such as South Beach, Cliveden, Handy Road site and Boulevard 88, by 10% to reflect the segment’s larger exposure to investment demand. We now assume SGD3,000 psf for South Beach and SGD2,350 psf for its Handy Road site.
  • Price cuts for the mid-to-mass-market segment are smaller at about 5% as we expect demand from owner occupiers to support prices. ASPs for West Coast Vale are now forecast at SGD1,330 psf while those for its Amber Park site are SGD2,230 psf.

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Derrick Heng CFA Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-07-06
SGX Stock Analyst Report HOLD Downgrade BUY 10.40 Down 14.200