City Developments - CGS-CIMB Research 2021-02-26: Dragged By Impairments & Sincere Property


City Developments - Dragged By Impairments & Sincere Property

  • City Developments’s FY20 net loss of S$1.92bn is below our full-year forecast.
  • New residential launches, asset enhancements and the potential unlocking of hotel asset value drive our positive outlook for FY21F.
  • We reiterate our ADD call with a lower RNAV-based target price of S$8.97.

City Developments's 2H/FY20 results highlights

  • City Developments (SGX:C09) reported 2H20 net loss of S$1.92bn, dragged by lower performance across its business segments due to
    1. the impact of the COVID-19 pandemic,
    2. impairment losses of S$1.78bn on its joint venture investment in Sincere Property Group,
    3. impairment losses for its hotels and investment properties, and
    4. allowance for forseeable losses for development projects. FY20 came in at a net loss of S$1.917bn.
  • City Developments proposed a final dividend of S$0.08, bringing total FY20 dividend to S$0.12.

Two new launches in FY21F

  • Excluding the impact of Sincere, City Developments's property development segment would have reported a lower y-o-y PBT of S$219.8m for FY20 on a 15% decline in revenue to S$965.9m, due to slower construction progress owing to COVID-19 and contributions from leaner margin developments.
  • City Developments plans to launch the 540-unit Irwell Hill Residences in 2Q21 and the residential component of Liang Court redevelopment in 2H21.
  • Rental income segment (excluding Sincere Property) also saw lower PBT of S$135.8m for FY20, due to rental rebates provided to retail tenants, impairments on investment properties and lower of divestment gains. Nonetheless, committed occupancy for its Singapore office and retail properties remained relatively stable at 92.2%.

Slower hotel segment recovery

  • City Developments's hotel segment reported a pre-tax loss of S$466.8m for FY20, dragged by impairments and a 64.5% decline in portfolio RevPAR, on lower occupancies with lockdowns due to COVID-19. Hotel operations are expected to continue to face pressure as travel restrictions continue to be enforced, although there are some green shoots of recovery.
  • In Singapore and NZ, its hotels are positioning to host large-scale events ranging from major global conferences to sporting events. In addition to a shift to digitisation, asset enhancements and cost-streamlining efforts to improve efficiencies are ongoing.

Higher net debt to equity post write-down

  • City Developments's net debt to equity ratio rose to 0.93x, at end-FY20 (0.62x after factoring in fair value on investment properties), with cash and undrawn facilities of S$5.2bn at end-2H20.
  • Management indicated that it would also accelerate efforts to unlock the deep value of the portfolio of hotel assets, continue to grow its fund management business through establishment of a UK commercial SREIT and enhance its portfolio through redeveloping Fuji Xerox Building (FXB) and Central Mall (CM). These have not been factored into our current RNAV estimate.

Reiterate ADD rating

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-26
SGX Stock Analyst Report ADD MAINTAIN ADD 8.97 DOWN 10.100