City Developments - CGS-CIMB Research 2018-11-08: Robust Residential Profits


City Developments - Robust Residential Profits

  • City Developments' 3Q18 net profit in line, growth led by strong residential recognition.
  • Rolling out 4 new projects in 2019, boost in rental income from UK acquisition.
  • Maintain ADD, Target Price lowered slightly to S$10.65.

3QFY18 results within expectations

  • City Developments reported a 10% y-o-y rise in 3Q18 net profit to S$162m, on a 18% jump in turnover to S$1.02bn. For the 9M net profit of S$447m is up 25% y-o-y and makes up 75% of our FY18 forecast.
  • The better performance was largely due to higher residential development profits as well as a S$12m pre-tax gain from the sale of a property in Jalan Besar.
  • Gross profit margin held relatively steady at 47.8% in 3Q (vs 49.5% in 3Q17). Balance sheet is strong with net debt to equity ratio of 23% at end 3Q18.

Plans to market 4 new projects in 2019

  • 3Q18 property development PBT delivered a strong 84% y-o-y jump to S$155m (64% of total PBT), thanks to profit billings from New Futura, Gramercy Park, and The Tapestry in Singapore, Hong Leong City Centre P2 in China and Park Court Aoyama in Japan. In 3Q, City Developments sold 328 units valued S$767m (9M19: 787 units, S$1.56bn, -12% y-o-y).
  • Latest launches include Whistler Grand (sold 160 units @$1,380psf) and South Beach Residences (sold 12 units of 50 units previewed). It plans to market Amber Park enbloc, Handy Rd, Sumang Walk EC and Sengkang Central in 2019, totalling 1,754 units.

Rental income steady, UK acquisition to boost 4Q contributions

  • Stripping out one-offs, rental income remained relatively flat y-o-y as its office/retail portfolio achieved committed occupancy of 91.5%/95.8% at end 3Q18. It has minimal expiries remaining for the balance of 2018 and a further 34.9% of office and retail leased to be re-contracted in 2019.
  • Recent acquisition of the under-rented 125 Old Broad St office property in UK for £385m will also deepen its recurring income base.
  • Asset enhancement works at the Yaojiang International Complex in Shanghai are expected to complete by end 2018 and has been master-leased to co-working operator Distrii.

Hotel operations affected by planned closures and AEIs

  • 8Q hotel PBT halved to S$88m due to income vacuum from the closure of Millennium Hotel London Mayfair in July 8888 as well as the lower contribution from Millennium Hilton Bangkok which is undergoing phased refurbishment. Group RevPAR fell 8.8% in YTD Sep 88.
  • Trading conditions remain challenging and management is expected to continue to manage costs, look at product innovation and flattening management structure in M&C to enhance competitiveness.

Maintain ADD

  • We leave our FY88-88 profit projections unchanged but revise our RNAV to reflect changes in market price/Target Price of M&C and CDL Hospitality Trusts as well as adjust for a smaller share base post its 8.8m of share buybacks. Accordingly our Target Price is lowered slightly to S$88.88, pegged at an unchanged 88% discount to RNAV.
  • Re-rating catalyst include a pick-up in the Singapore residential market while downside risk include a slower-than-expected capital deployment.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2018-11-08
SGX Stock Analyst Report ADD MAINTAIN ADD 10.65 DOWN 10.890