City Developments Limited - OCBC Investment 2018-11-12: Under-Loved, Undervalued?

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CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments Limited - Under-Loved, Undervalued?

• CDL’s 3Q18 PATMI +10.4% y-o-y.
• Resilient ASPs but volumes softened.
• Broadening exposure to UK.

3Q18 results in-line with our expectations

• City Developments Limited (CDL) reported its 3Q18 results which were in-line with our expectations. Revenue jumped 17.7% y-o-y to S$1,016.9m due largely to higher contribution from its New Futura project, while PATMI increased 10.4% y-o-y to S$161.8m.
• For 9M18, CDL’s revenue jumped 37.3% to S$3,434.2m, while PATMI of S$446.6m represented growth of 25.4% and formed 80.7% of our FY18 forecast.

Encouraging sales launch for Whistler Grand

• In Singapore, City Developments and its JV associates sold 787 residential units with a combined sales value of S$1.56b for 9M18. The latter was down 11.6%. Notwithstanding the decline, City Developments has continued to drive its sales momentum.
• As at 4 Nov, 104 units of its New Futura project have been sold at an ASP above S$3,500 psf; 544 units (out of 600 released) of the Tapestry have been sold; 12 units (out of 50 released) of its South Beach Residences found buyers, including its super penthouse for S$26m.
• City Developments had also launched its Whistler Grand project on 3 Nov, and 160 out of the 240 units released were sold at ~S$1,380 psf.

Down but not out; value has emerged

• While industry headwinds would likely persist in the foreseeable future, we do see some positives from
  1. City Developments’ share buybacks which are supported by its strong balance sheet (net gearing of 23%),
  2. resilient ASPs which are tracking above our initial expectations,
  3. diversification of income streams with the acquisitions of two UK investment properties, notwithstanding Brexit uncertainties, and
  4. upcoming launches have already obtained Provisional Planning from URA and thus will not be subjected to the latest revision in guidelines on the minimum average unit sizes.
• City Developments’ share price has dipped 24.6% since the property cooling measures were announced on 5 Jul 2018. At its current closing price of S$8.45, we believe negatives are priced in and value has likely emerged.
• After fine-tuning our assumptions (recent acquisitions, M&C share price and smaller shares outstanding) and applying a lower RNAV discount of 35% (previously 40%) on account of less dire-than-expected market conditions, we derive a higher fair value estimate of S$10.73 ( previously S$9.81). 
• Upgrade from ‘Hold’ to BUY. 

Wong Teck Ching Andy CFA OCBC Investment Research | https://www.iocbc.com/ 2018-11-12

SGX Stock Analyst Report BUY UPGRADE HOLD 10.73 UP 9.810