City Developments - OCBC Investment 2021-03-01: Kitchen Sinking End To FY20


City Developments - Kitchen Sinking End To FY20

  • City Developments reported FY20 net loss of S$1.9b.
  • Full-year dividends lowered to S$0.12 per share (FY19: S$0.20).
  • Significant impairment of Sincere Property investment; look to starting FY21 afresh.

CityDev's FY20 net loss attributable to shareholders of S$1.9b, below expectations

  • City Developments (SGX:C09) reported a net loss attributable to shareholders of S$1.9b in FY20, versus PATMI of S$564.6m in FY19. This was below our expectations. Net loss was largely driven by a significant impairment and share of loss from its investment in Sincere Property Group (Sincere) amounting to S$1.8b.
  • City Developments's FY20 total dividend per share was lowered to S$0.12 (FY19: S$0.20).
  • Notwithstanding the weak set of results, we believe this kitchen sinking exercise sets expectations for FY21 at a much lower base and investors should look forward to a recovery underpinned by a macroeconomic rebound.

Net exposure to Sincere significantly reduced to S$126m on CityDev’s balance sheet

  • Sincere’s S$1.8b negative contribution to City Developments in FY20 can be broken down as follows:
    1. S$882m of impairment loss on equity investment (fully written off) and equity account for loss,
    2. S$612m of impairment losses on bond investment and receivables owed, and
    3. S$283m of provision for corporate guarantee.
  • With this impairment exercise, Sincere’s estimated RNAV has declined by 95% and City Developments only has S$126m of net exposure to Sincere left on its balance sheet. It will thus start FY21 with its balance sheet on a cleaner slate.
  • Management highlighted that it had done sufficient due diligence on Sincere prior to its investment, but acknowledged that the debt restructuring exercise of the entity was more challenging than anticipated.
  • We believe Sincere is not fully out of the woods yet, as it has RMB20.6b of principal loans repayment in 2021, versus RMB2.0-4.4b from 2022 to 2025. That said, City Developments has ring-fenced its own balance sheet from Sincere, and has committed not to inject new funds into Sincere until it has recovered to a healthy position.

Net gearing increased to 62% (including fair value on investment properties); exploring avenues to unlock value

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-03-01
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