City Developments - Phillip Securities 2021-09-20: Recovery & Assets Monetisation Underway


City Developments - Recovery & Assets Monetisation Underway

  • Catching Singapore property upcycle with a strong development pipeline of 1,746 units, translating to FY22e/23e GDV of S$2.1b/S$1.0bn.
  • Impending recovery of hospitality sector and monetisation of assets through potential S-REIT listing to improve financial position.
  • Re-initiate coverage on City Developments with BUY and RNAV-derived target price S$9.19 (35% discount). City Developments is trading at an attractive 49% discount to our RNAV/share of S$14.14.

City Developments - Investment Thesis

Catching Singapore property upcycle with a strong development pipeline.

  • City Developments (SGX:C09) picked up two plots of land year-to-date – the Northumberland Road GLS and the Tengah Gardens EC site. Residential units from its redevelopment projects, Canninghill Piers (Liang Court) and Fuji Xerox, brings City Developments’s unlaunched pipeline to 1,121 units, which will be launch over the next two years.
  • Based on our forecasts, these two redevelopment projects should yield CDL respectable margins above 30%. Including the unsold units from earlier launches, we estimate that City Developments has 1,746 units to be monetised, translating to FY22e/23e GDV of S$2.1b/S$1.0bn.

Impending recovery of hospitality sector.

  • City Developments’s hotel segment contributed S$192/178mil or 16.2%/15.8% of EBITDA in 2018/19. COVID-19 severely impacted the hospitality portfolio in FY20. Portfolio occupancy fell from 74% to 39%, resulting in a 64.5% nosedive in RevPAR. Revenue for the segment is expected to recovery gradually, in tandem with the sector.
  • City Developments’s cost containment initiatives to reduce duplication of roles and digitalisation efforts to lower manning cost should help improve margins, hastening its return to profitability.
  • Keeping our forecast conservate, we projected 20% revenue CAGR for FY21e-FY25e. We expect the segment to turn NPI positive by 2024, before recovering to pre-pandemic levels in 2025.

Listing of UK Commercial REIT improve balance sheet.

  • City Developments applied for the initial public offering of UK commercial S-REIT in June 2021. We understand that that City Developments will co-sponsor the S-REIT.
  • Assuming a 20-25% stake for City Developments, the injection of 125 Old Broad Street and Aldgate House into a 38%-geared S$3.5bn S-REIT portfolio could unlock S$526-633mil for the group.

City Developments - Outlook

Closing the chapter on Sincere.

  • City Developments provided a S$1.7bn write down on its exposure to Sincere in 2H20, fully impairing its equity stake in Sincere. The sale of the equity stake in Sincere for US$1, which was announced on 10 September 2021, is City Developments’s final attempt to turn the page on this chapter.
  • In the announcement, City Developments also reported the transfer of Sincere’s 10% effective stake in Shenzhen Longgang Tusincere Tech Park to the group, as partial repayment of loans extended to Sincere. See City Developments's announcements. This further reduces City Developments’s exposure to Sincere to approximately S$52mil, while increasing City Developments’s stake in Tusincere to 65%. City Developments acquired its initial 55% stake in Feb21. As of 20 February 2021, 2224,933 sqm or 54% of the saleable area of Phase1-3 have been pre-sold, translating to sales proceeds of RMB7.2bn (~S$1,477mil). Construction of Phase 4, the self-held office block, has not commenced.

Re-initiate with BUY and RNAV target price of S$9.19

Natalie Ong Phillip Securities Research | https://www.stocksbnb.com/ 2021-09-20
SGX Stock Analyst Report BUY MAINTAIN BUY 9.19 DOWN 10.680