City Developments - OCBC Investment 2020-07-15: Down But Not Out 


City Developments - Down But Not Out 

  • City Developments guided for a subdued set of 1H20 results.
  • Liquidity position remains healthy.
  • Lower Fair Value to S$10.74.

Profit guidance on substantial reduction in 1H20 pre-tax profit

  • City Developments (SGX:C09) recently provided a profit guidance on its upcoming 1H20 results. It expects its 1H20 pre-tax profit to be substantially lower as compared to 1H19, while PATMI will also be materially and adversely impacted from the Covid-19 crisis.
  • All of City Developments’ major business segments are expected to contribute to this decline, especially its hotel operations, which is mainly led by its wholly-owned subsidiary, Millennium & Copthorne Hotels Limited (M&C). RevPAR in 1H20 is expected to see a dip of ~50-60%. Despite efforts to control costs, the hotel operations segment is expected to post a pre-tax loss of approximately S$120-140m for 1H20, a stark contrast to a pre-tax profit of S$76m recorded in 1H19.
  • City Developments’ property development segment is also expected to register a dip in revenue by ~10% due to the shutdown of showflats during the circuit breaker period and recognition of lower margin projects as compared to 1H19.
  • As for City Developments’ investment properties segment, the negative impact will come from more than S$30m of property tax and rental rebates given to its tenants, especially for its retail malls in Singapore and overseas. Furthermore, there was also a significant S$197m pre-tax gain which arose from the closure of its Profit Participation Securities 2 platform in 1H19.
  • Nevertheless, the aforementioned factors are expected to be mitigated by the recording of a negative goodwill as a result of City Developments’s 51.0% acquisition of Sincere Property Group announced in Apr 2020. As a recap, City Developments was able to acquire this Chinese property developer at a P/NAV of 0.52x.

Financial position remains robust

  • Although there are still uncertainties over the length and depth of the Covid-19 pandemic, City Developments highlighted that it has sufficient liquidity to weather the crisis. To date, it has total cash and undrawn and committed credit facilities exceeding S$5b. Total debt maturing in 2020 was S$1.8b, as at 31 Mar 2020.

Cheap valuations; negatives likely priced in

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-07-15
SGX Stock Analyst Report BUY MAINTAIN BUY 10.74 DOWN 12.010