CITY DEVELOPMENTS LIMITED (SGX:C09)
City Developments - Making Steady Progress
- Maintain NEUTRAL with new Target Price of SGD10.50 from SGD9.20, 0% upside.
- CITY DEVELOPMENTS (SGX:C09)'s 3Q19 results (excluding impairments) were in line. Key takeaways are the successful privatisation of M&C hotels and good take-up at Singapore residential launches. See City Developments Announcements.
- A key concern remains on the impact of its UK portfolio from Brexit uncertainty and regulatory risks.
- While valuations are reasonably attractive at > 40% discount to RNAV, the stock lacks a strong catalyst.
Transformation of M&C – the key catalyst to watch out for.
- As anticipated City Developments succeeded in its bid to privatise Millennium & Copthorne (M&C) hotels (see report: City Developments - RHB Invest 2019-06-10: Revised Takeover Offer For Millennium & Copthorne Hotels), with the stock delisted from the London Stock Exchange on 11 Oct 2019.
- The successful transformation of hotel operations will be a key re-rating catalyst for City Developments, where EBITDA contribution has been on a declining trend (YTD 2019: SGD137m, vs 9M18: SGD208m and 9M17: SGD256m) due to weaker operational performance, impairments and closure for asset enhancement.
- In the near term, we expect City Developments to pump in significant capex ( > SGD100m) to better reposition its ageing hotel assets, which should benefit it in long term. Global RevPAR (constant currency) for its hotels improved 4.3%/1.6% y-o-y in 3Q/9M19 respectively.
Good take-up at Singapore residential launches.
- YTD, six residential projects were launched in Singapore, which saw healthy sales take-up of c.15-55% of total units. 9M19, City Developments sold about 1,130 units (+44% y-o-y) and achieved a higher sales value of SGD2.6bn (+66% y-o-y) providing good earnings visibility. Management earlier guided margins for high-end projects to be > 20% and low teens for mass to mid-end developments.
- The take-up of its China projects has also been fairly steady with 420 units sold – total sales value of CNY1.4bn (SGD269m).
- Upcoming Singapore residential launch to watch out for is the Sims Drive site (JV with Hong Leong Holdings) in 1Q20.
Fund management slowly gaining traction.
- City Developments obtained its Capital Markets Services license from the Monetary Authority of Singapore paving the way to set up a private fund and/or REIT and accelerate its fund management plans. City Developments had earlier acquired 50% manager stake in SGX-listed IREIT GLOBAL (SGX:UD1U) – currently it holds c.12.6% stake in the REIT. (see IREIT Global Share Price; IREIT Global Target Price)
Asset enhancements.
- Republic Plaza’s SGD70m AEI was completed in Sep 2019 with committed occupancy of > 90% and rental 10% higher than pre-AEI rental. Other AEI plans include upgrading works at City Industrial Building and Jungceylon retail mall in Phuket.
- Management expects high single-digit ROI from asset enhancement works.
- Gearing post recent acquisitions and AEIs still remains comfortable at 43% (FY18: 31%).
Earnings and RNAV adjustment.
- We revise our FY19F-21F net profit by 6- 12% to factor in the M&C privatisation. Our RNAV is also lifted up by 14% as we now use book value of M&C instead of mark to market value of shares. See City Developments Share Price; City Developments Target Price.
Vijay Natarajan
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-11-14
SGX Stock
Analyst Report
10.50
UP
9.200
