City Developments - UOB Kay Hian 2019-11-13: 3Q19 Impacted By Lumpy Property Development Revenue & One-off Costs


City Developments - 3Q19 Impacted By Lumpy Property Development Revenue & One-off Costs

  • City Developments' 3Q19 revenue and net profit missed our expectations due to timing of revenue recognition for the property development segment, impairment charges on two M&C hotels, and one-off costs related to the M&C transaction.
  • We lower our net profit estimates by 3-6% for 2019-21 but maintain our positive view on the stock due to its exposure to the residential, office and hospitality segments.
  • Maintain BUY. Target price: S$12.00.


Below expectations.

  • CITY DEVELOPMENTS (SGX:C09)’ 3Q19 revenue declined 13% y-o-y to S$885.3m and net profit fell 34% y-o-y to S$173.3m. The lower revenue was due to the timing of revenue recognition for the property development segment whereby project revenues cannot be recognised progressively but has to be recognised in one lump sum at completion. See City Developments Announcements.
  • In 3Q18, revenue was much higher due to the completion of the New Futura project in Singapore.

Chunky items impacted bottom line.

  • These included an impairment loss of S$37m for two Millennium & Copthorne (M&C) hotels, namely the Millennium Hilton Seoul and the Millennium Hilton New York One UN Plaza, as well as transaction costs related to City Developments’ initiative to take M&C private in Oct 19.

Key highlights for 3Q19.

  • City Developments launched three projects in Singapore which saw total sales of 1,130 units worth S$2.56b ytd.
  • In China, City Developments sold 420 units worth Rmb1.39b (S$269m).
  • On the asset management side, both its office and retail portfolios continued to record robust occupancies of 91.3% and 94.2% respectively.


Continuing to gather assets with recurring income.

  • One of the key initiatives will be completed on 19 Nov 19 when City Developments expects to compulsorily acquire all the issued shares held by M&C shareholders who have not accepted the Final Offer. M&C will then become City Developments’ wholly-owned subsidiary.
  • City Developments had also acquired a prime commercial asset in Shanghai for Rmb1.75b (S$344m) earlier in 2019, further laying the foundation for recurring income in the coming years.

New asset commenced operations in London.

  • Biltmore Mayfair reopened on 9 Sep 19 after a GBP60m refurbishment. While the 307-room property is currently managed by Hilton under its LXR Hotels & Resorts brand, M&C has the rights to assume management of the hotel after five years.

Asset enhancement initiatives bearing fruit.

  • City Developments is currently implementing various asset-enhancement initiatives (AEI) at its properties, the key one being Republic Plaza in Singapore’s CBD which was recently completed. City Developments said that post AEI, it has seen a 10% rental reversion and expects this trend to continue.
  • Two other assets that will be undergoing AEI are the City Industrial Building in Singapore and the Jungceylong mall in Phuket.

Japan expansion in 2019.

  • During 3Q19, City Developments entered into a sales-and-purchase agreement to acquire three residential projects in Osaka totaling 130 apartment units for JPY3.45b (S$44.3m). Of the three projects, one was recently completed in Sep 19 while the other two will be completed by 1Q20. Together with its 2Q19 acquisition of a 34-unit project in Osaka, City Developments’ “Build-to-Rent” properties in Japan now total JPY5.5b (S$69.3m).


  • We lower our net profit estimates for 2019-21 by 3-6% to take into account slower recognition of property development projects as well as a slightly higher tax rate.


  • Maintain BUY and target price of S$12.00, which is a 20% discount to our RNAV of S$15.00/share. See City Developments Share Price; City Developments Target Price.
  • Over the second half of Oct 19, City Developments' share price saw a decent 10% share price jump which we attribute to positive sentiment around the company’s successful effort in taking M&C private as well as the decent sell-through of its new property launches in Singapore. Nevertheless, the company’s 2020F P/B of 0.9x is still an 18% discount to its 10- year average of 1.1x.


  • Continued positive sentiment in the Singapore residential market.
  • Post the M&C transaction, implementation of new strategies to drive stronger performance and growth from hotel operations.

Adrian Loh UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2019-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 12.000 SAME 12.000