City Developments - CGS-CIMB Research 2019-05-15: Busy 1Q19


City Developments - Busy 1Q19

  • CITY DEVELOPMENTS LIMITED (SGX:C09)'s 1Q19 EPS of 22 Scts, lifted by divestments, was 37.6% of our FY19 forecast.
  • Accelerating China growth via stake in Sincere Property Group.
  • Maintain ADD with unchanged Target Price of S$10.66.

CDL's 1Q19 results highlights

  • CITY DEVELOPMENTS LIMITED (SGX:C09)’s 1Q19 revenue of S$746.2m was down 29.5% y-o-y due to a high base in 1Q18 with the recognition of 100% of revenue from The Criterion EC. Excluding this, topline would have improved 6% y-o-y.
  • Net profit surged 134% y-o-y to S$199.6m (EPS: 22 Scts), and made up 37.6% of our FY19F forecast, thanks to the S$144.3m gain from divestment of Manulife Centre and partly offset by loss from hotel operations.

Steady development PBT on higher margins

  • Although City Developments' 1Q development revenue fell 56% y-o-y to S$249.5m, PBT held steady at S$87.4m with the billings from higher margin projects such as New Futura, Gramercy Park, as well as The Tapestry, Whistler Grand, Hongqiao Royal Lake and Suzhou Hong Leong City Centre.
  • In 1Q19, City Developments sold 173 units valued at S$516.3m in Singapore. The group will continue to roll out 3 projects with a potential of 1,688 units for the rest of 2019.

Higher rental income from new acquisitions

  • Hotel operations reported a 1Q19 pre-tax loss of S$1.9m with the full closure of Millennium Hotel London Mayfair for refurbishment and lower Orchard Hotel earnings.
  • Rental contributions ticked up with the inclusion of income contributions from 125 Old Broad St, Aldgate House and Le Grove serviced residence.

Strategic investment in Sincere Property Group…

  • Apart from investing S$259m into new projects in Singapore and UK in 1Q19, City Developments announced that it is taking an effective c.24% stake in Sincere Property Group (Sincere) for Rmb5.5bn comprising share subscription and a 4-year interest bearing loan. City Developments also intends to purchase a 70% stake in Shanghai Hongqiao Sincere Centre P2 for Rmb1.2bn. No details on valuation of the transaction have been revealed as yet, pending regulatory approval and completion towards 2H19.
  • As at Mar 19, City Developments has extended Rmb3.3bn (of the total investment amount of Rmb6.7bn) in the form of debt. Proforma gearing projected to increase from 0.36x as at Mar 19 to 0.41x, post deal.

…to accelerate China growth

  • The strategic investment in Sincere Property Group will provide City Developments with a platform to build scale and accelerate its growth in the China real estate market. Post-acquisition, China will account for 15% of City Developments’ portfolio allocation.
  • Sincere Property Group is ranked among the top 100 developers in China with a development landbank of 12.6m sqm across 20 cities and a substantial portfolio of investment properties, with activities spanning across residential, commercial, business parks, retail and serviced residences. Sincere Property Group’s NAV is Rmb16bn as at Dec 18.

Retain ADD rating

  • We lower our FY19-21F EPS by 5.3-10.4% on lower-than-expected hotel contributions.
  • We maintain our RNAV of S$16.40 and Target Price of S$10.66 pending more details on the deal.
  • Upside risk is a pick-up in the Singapore residential market, while downside risks include slow capital deployment.

LOCK Mun Yee CGS-CIMB Research | https://research.itradecimb.com/ 2019-05-15
SGX Stock Analyst Report ADD MAINTAIN ADD 10.660 SAME 10.660