City Developments - CGS-CIMB Research 2019-02-21: Stronger Residential Profit Partly Offset By Impairments


City Developments - Stronger Residential Profit Partly Offset By Impairments

  • City Developments' FY18 reported net profit broadly in line, at 97% of our forecast.
  • Strong residential profits in FY18, 2,434 new units to be rolled out in FY19.
  • Maintain ADD with a slightly higher Target Price of S$10.66.

4Q18 profit dragged down by impairments

  • CITY DEVELOPMENTS LIMITED (SGX:C09) reported 4Q18 net profit of S$77.8m (-54.7% y-o-y), due to S$114m of impairment losses for hotels and allowance for foreseeable losses for two development projects in London, and high base in 4Q17. Excluding these items, net profit would have grown 17% y-o-y.
  • City Developments FY18 reported net profit of S$557.3m was broadly in line with our expectations, at 97% of our forecast.
  • The group proposed a higher DPS of 20 Scts for FY18 comprising 14 Scts (8 Scts final, 6 Scts special), and 6 Scts interim dividend paid earlier.

Residential development operations continue to shine

  • Residential revenue and PBIT surged 24%/43% y-o-y in FY18, underpinned by contributions from New Futura, Gramercy Park, The Tapestry, and Park Court Aoyama The Tower in Japan.
  • Although the number of units the group sold in FY18 was lower y-o-y at 1,113, their value was 14% higher vs. FY17’s at c.S$2.2bn, with a greater proportion of high-end products.
  • For FY19, City Developments plans to roll out 2,434 units from Boulevard 88, Amber Park, Haus on Handy, Sumang Walk EC, and Sengkang Central mixed-use project.

Hotel operating environment remains challenging

  • Hotel segment posted a loss in 4Q and a 55% decline in EBIT for FY18, dragged down by S$94.1m in impairment losses, largely for its US hotels and the closure of Mayfair Hotel. Operations-wise, group revenue per available room (Revpar) in reported currency terms slipped 1.5% in FY18.
  • Outlook remains modest as the group continues to invest and reposition its hotels; it has earmarked several large hotels for renovations.

Low net debt to equity provides capacity for new investments

  • Total assets grew 8% to S$20.9bn in FY18 as the group replenished its residential land bank in Singapore as well as expanded its UK commercial property portfolio.
  • En-route to reaching its recurring income target of S$900m by 2028, City Developments has secured a mandate to jointly manage a A$300m office asset in Sydney and had acquired the remaining 60% stake in Central Mall office tower from Alpha Investment Partners, with plans to explore redevelopment potential.
  • Net debt to equity stood at a healthy 0.31x at end-FY18, providing the group with significant capacity for new investments.

Maintain ADD

  • We revise our FY19-20 EPS forecast post results to factor in a healthy launch pipeline in FY19. At the same time, our RNAV and Target Price increase slightly to S$16.40/S$10.66 as we impute the latest Target Price for CDL HOSPITALITY TRUSTS (SGX:J85)
  • We retain our ADD rating.
  • Potential re-rating catalysts include a pick-up in the Singapore residential market while downside risks include a slower-than-expected capital deployment.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-21
SGX Stock Analyst Report ADD MAINTAIN ADD 10.66 UP 10.650