City Developments - CGS-CIMB Research 2020-08-13: Challenging 1H20

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Challenging 1H20

City Developments' 1H20 EPS below at 0.8% of our FY20F forecast, dragged by hotel losses.
Value creation from proposed redevelopment of Fuji Xerox and Central Mall.
Reiterate ADD rating, with a lower Target Price of S$10.10 (45% discount to RNAV).

City Developments (SGX:C09) reported a 1H20 PATMI of S$3.1m (-99.1% y-o-y), on a revenue of S$1,072.9m, dragged by lower performance across its business segments due to the adverse impact of the COVID-19 pandemic.
There was also lower jv contributions with after-tax losses from its 51.01% stake in Sincere Group (acquisition completed at end- Apr 2020), reduced one-off gains, as well as S$33.9m in impairment losses for 8 hotels in the US, Europe and UK. This was partly offset by a S$43.2m negative goodwill from its stake in Sincere Group and S$49.9m divestment gains.
City Developments' balance sheet remains healthy with net debt/equity of 0.71x and cash and undrawn facilities of S$4bn at end-1H20.

1H20 property development PBT saw a 36% y-o-y decline to S$115m, with contributions coming from the leaner-margin projects, such as The Tapestry, Whistler Grand and Amber Park. The group sold 356 units in 1H20, with a value of c.S$515m (-66.5% y-o-y).
City Developments plans to launch the 566-unit Penrose at Sims Drive in 2H20. Within its commercial portfolio, shopper footfall at its retail outlets has recovered by 88% to date, since phase 2 circuit breaker re-opening from 19 Jun, although sales remain weak.
Occupancy at its office and serviced apartments in China remains stable at c.50% and 70%, respectively.

City Developments' hotel segment reported a PBT loss of S$208.2m, inclusive of a S$34m impairment charge, weaker than its earlier profit guidance of a S$120m-140m loss. Portfolio RevPar declined 56.6% y-o-y in 1H20, and 28% of its 152 hotels worldwide still remain temporarily closed as at end-1H20.
While there are signs of some pick-up, any recovery in hotel performance is likely to be muted. Management guided that losses are expected to continue through year-end and it would continue implementing cost-cutting strategies.

On portfolio enhancement, in addition to redeveloping Liang Court into a mixed-used integrated project, City Developments is also planning to redevelop Fuji Xerox Building (FXB) and Central Mall (CM), under the government’s Central Business District incentive scheme.
Fuji Xerox Building is likely to be redeveloped into a 51-storey mixed-use project with a floor area of 655k sq ft, while Central Mall is likely to be redeveloped into a mixed-use development, with a floor area of c.240k sq ft. Both developments are still pending approvals from the authorities.
City Developments is also looking to divest its non-core hotels and China investment properties. These have not been factored into our current RNAV estimate.

We cut our City Developments's FY20-21F EPS by 11.4-45.8% to factor in continued losses from its global hospitality business. Our RNAV/Target Price is tweaked down to S$18.37/S$10.10, after factoring in a lower Target Price for CDL Hospitality Trusts (SGX:J85).
See City Developments Share Price; City Developments Target Price; City Developments Analyst Reports; City Developments Dividend History; City Developments Announcements; City Developments Latest News.
A potential re-rating catalyst is a faster-than-expected recovery in the global hospitality sector.
Downside risks: drag from slow macro outlook on residential sector.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-13

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