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


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's 1H20 results highlights

  • 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.

Slower residential contributions from lower-margin projects

  • 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.

Challenging hotel environment to persist

  • 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.

Redeveloping Fuji Xerox and Central Mall to enhance value

  • 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.

Reiterate ADD rating

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-13
SGX Stock Analyst Report ADD MAINTAIN ADD 10.10 DOWN 10.230