City Developments - OCBC Investment 2019-11-14: Positive Developments

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Positive Developments

CITY DEVELOPMENTS LIMITED (SGX:C09) reported its 3Q19 results which met our expectations. Revenue fell 12.9% y-o-y to S$885.3m due largely to lower profit recognition for development projects, but partially offset by higher revenue from Hotel Operations and Investment Properties. See City Developments Announcements.
PATMI dipped 33.7% y-o-y to S$115.0m and formed 21.8% of our FY19 forecast. The decline was due in part to impairment losses on Millennium Hilton Seoul and Millennium Hilton New York One UN Plaza amounting to S$36.9m and one-off costs of S$24.0m incurred for the privatisation of Millennium & Copthorne (M&C). Excluding these items, PATMI would instead have declined by 11.4% y-o-y.
For 9M19, City Dev’s revenue and PATMI were down 27.7% and 0.5% to S$2,481.8m and S$476.9m, respectively.

City Dev has sold 1,130 residential units in Singapore for the 9M19 period, which is an increase of 43.6% y-o-y. The total sales value of these units came up to S$2,557.1m, representing an increase of 64%.
Most of its projects have seen healthy demand, in our view, with ASPs largely coming in above our expectations. Its latest Sengkang Grand Residences (50-50% JV with CapitaLand) project saw brisk sales, with 216 out of 280 units released sold at an ASP of ~S$1,700 psf.
Other notable projects include Boulevard 88 (83 out of 90 units released sold at > S$3,800 psf) and Piermont Grand EC (444 out of 820 units released sold at ASP of S$1,080 psf).

Another major development was City Dev’s successful privatisation of M&C, which was delisted from the London Stock Exchange on 11 Oct. The compulsory acquisition of the remaining M&C shares under the Final Offer will be completed on 19 Nov.
Looking ahead, City Dev intends to take a holistic review of its hotel operations segment, which includes internal restructuring to enhance organisational processes and improving operational efficiency to maximise shareholder value.
After adjustments, which include factoring in the 100% ownership of M&C, and acquisitions of interests in Sincere Property Group, IREIT GLOBAL (SGX:UD1U) and its Manager, we raise our RNAV per share forecast by 12.6% to S$18.50.
Keeping our RNAV discount peg of 35%, we derive an updated fair value of S$12.02 (previously S$10.68). See City Developments Share Price; City Developments Target Price.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-11-14

SGX Stock Analyst Report BUY MAINTAIN BUY 12.02 UP 10.680