City Developments - UOB Kay Hian 2020-02-28: 2019: Mixed Results With Near-term Headwinds


City Developments - 2019: Mixed Results With Near-term Headwinds

  • City Developments reported a mixed set of results with NPAT rising 1.3% y-o-y and missing our and consensus estimates. Despite the double-digit decline in revenue, EBITDA proved to be reasonably robust, down only 5% to S$1.13b.
  • We lower 2020 earnings by 4% to take into account the negative impact of the COVID-19 outbreak and assuming that this issue is contained by mid-20.
  • Maintain BUY and raise target price slightly to S$12.50 from $12.00 previously.


  • City Developments (SGX:C09) reported a mixed set of results with 2019 revenue declining 19% y-o-y to $3.4b given the high base in 2018 when four major, high-margin projects were able to recognise revenue. Despite the double-digit decline in revenue, EBITDA proved to be reasonably robust, down only 5% to S$1.13b.
  • City Developments’s 2019 NPAT rose by 1.3% y-o-y to $565m, missing both our and consensus estimates. In our view, the highlight of the result was the Singapore residential segment where 2019 sales rose 40% y-o-y to 1,554 units (including ECs) while sales value rose 49% y-o-y to S$3.3b.
  • City Developments launched a record six projects in 2019 and currently has c.1,540 units of unsold inventory in Singapore.
  • Dividend. Final dividend of $0.08 declared plus a special final dividend of $0.06. As a result, total 2019 dividend of $0.20 (33% pay-out ratio) was unchanged from 2018.
  • City Developments for the first time revealed that their RNAV is S$16.46/share vs our revised $15.60 estimate. On the results call, management were firmly of the view that even at $16.00, there is considerable valuation upside as a number of the company’s properties continue to be valued at historical cost, and not fair value. For example, its hotels portfolio comprise 24% of its property, plant and equipment on its balance sheet, however this is valued at historical cost.


  • COVID-19 impact: The company stated that while it has not seen a negative impact to its high-end/luxury residential sales in Singapore from COVID-19, it believes that new supply coming in is a bigger threat at the moment. On the hospitality front, City Developments said that COVID- 19 has put a dent in its business as it is currently experiencing c.50% occupancy in Asia, which is still ‘comfortable’ compared to its 30% breakeven point. Its properties in the EU and US have not felt any impact yet, however the company added that it is still ‘early days’ for Europe given the negative newsflow coming out of Italy in particular. As a result of the low occupancy rate in Asia, City Developments did not rule out small impairment charges to their hotels, and could even elect to undertake asset enhancement initiatives at this point in time when business is sluggish.
  • Strong sell-through of its overseas projects with China witnessing Rmb1.81b (S$350m) in sales from 530 units, while its Melbourne, Australia, project that launched in May 19 has sold over 60% of its 195 units.
  • Hospitality – Will need to wait a while longer to recover. This segment generated a loss in both 4Q19 and 2019 due to impairment losses and transaction costs for the M&C privatization. In addition, four major hotels were fully or partially closed for part of 2019 for refurbishment: Millennium Hotel Mayfair and Biltmore Mayfair in London, Dhevanafushi Maldives, and Orchard Hotel Singapore. While some of these assets have re-opened, some will inevitably be impacted lower travel demand due to the COVID-19 outbreak.
  • Asset sales/recycling. The company stated that in the medium term, it will actively look to monetise its UK assets – where its AUM is just under S$1b at present – by putting them into a REIT structure. It envisages that this REIT will be purely exposed to the UK as the market has depth and size, and from a currency perspective it is also easier to have it in one vehicle. Also in the medium term, its Millenium & Copthorne (M&C) hotel division has assets that could be injected into CDL Hospitality Trusts (SGX:J85), with the key near-term hurdle being the COVID-19 outbreak which has negatively impacted valuation and yield. Interestingly, the company stated that it would like to be a more “active sponsor” of their REITs going forward.
  • Future spending – Moderation in land-banking but more active on maintenance capex. On the land-banking front, City Developments stated that it will take a ‘balanced’ strategy and continue to replenish as and when it sees opportunities. At present, we note that the company has around 1,500 units in its unsold inventory which we believe is on the low side; conversely, management was also cognizant that at the time of the 2018 cooling measures, its unsold inventory of c.4,000 units was seen in a negative light by the market and led to selling pressure on its shares.
  • On the capex front, City Developments guided that it will look to spend c.$140m in 2020 and 2021 which is a higher run rate than in previous years, and acknowledged that it has underspent in hotels in particular in the past.


  • We downgraded earnings for 2020E by 4% to reflect the negative impact of the COVID- 19 outbreak based on a base-case scenario of the coronavirus having petered out by mid-2020.



  • Business and operational recovery once the COVID-19 outbreak is stemmed.
  • Strategic asset sales and capital recycling in UK and hospitality segments.

Adrian Loh UOB Kay Hian Research | Loke Peihao UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 12.50 UP 12.000