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


City Developments - Positive Developments

  • City Dev's 3Q19 PATMI fell 33.7% y-o-y.
  • Continued robust sales momentum.
  • Raise Fair Value to S$12.02.

3Q19 results in-line with expectations

  • 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.

Delivering strong growth in Singapore home sales

  • 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).

Successful privatisation of M&C; aiming to improve efficiency

  • 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 | 2019-11-14
SGX Stock Analyst Report BUY MAINTAIN BUY 12.02 UP 10.680