City Developments - RHB Invest 2022-05-25: Improving Performance Across All Segments; Buy


City Developments - Improving Performance Across All Segments; Buy

  • City Developments (SGX:C09)’s 1Q operational update shows positive recovery across all its segments with strong tailwinds from economic reopening. A more solid earnings recovery is expected for the rest of the year from a rebound in the hospitality segment and strong sales momentum in its residential projects.
  • Despite macroeconomic uncertainty, City Developments remains a deep value play trading at > 50% discount to its RNAV, which in our view, limits downside. Keep BUY and target price of S$9.75, 21% upside.

Strong demand for its latest new launch

  • Strong demand for its latest new launch, Piccadilly Grand (May) with 315 of 407 units sold at the launch weekend, representing a strong take-up rate of 77% – comparable to its launches before the latest cooling measures. At ASP of S$2,150 psf, we estimate margin to be at ~15%, indicating its strong pricing power and brand premium.
  • City Developments has also added three new projects to its landbank since the start of the year ie Jalan Tembusu site (GLS bid), Central Square redevelopment, and off market acquisition of Upper Bukit Timah Road site, which augurs well amidst a lack of new supply in the Singapore market.
  • City Developments’s healthy unbilled residential sales of ~S$4bn present good earnings visibility for FY22F-23F.

Hotel operations to stage a strong comeback.

  • Global portfolio revenue per available room (RevPAR) stood at S$89.6, > 2x of 1Q21, but 13% below 2H21, mainly due to the Omicron impact. Gross margin remained healthy at 14.6% (+8.5ppts y-o-y) and would have been much higher if we exclude impact from its New York hotels.
  • With major easing of COVID-19 restrictions across all its key markets of Singapore, London and the US, we expect its hotel portfolio to stage a strong recovery in 2H22 and reach 70- 80% of pre-COVID-19 levels by end 2022, with a near full recovery anticipated by end 2023.

Healthy balance sheet

  • Healthy balance sheet with a net gearing of 53% as at end March and an interest business – which targets to achieve an AUM of US$5bn by 2023.

No changes to our estimates

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-25
SGX Stock Analyst Report BUY MAINTAIN BUY 9.75 UP 9.000