CITY DEVELOPMENTS LIMITED (SGX:C09)
City Developments - Record Result In 1H22 Due To Divestment Gains
- City Developments reported a significant increase in its PATMI due to the completion of two large divestments. As a result, it declared a special interim dividend of S$0.12 which is likely to be repeated in 2H22 given that another two large en bloc divestments should be completed before the year end.
- City Developments’s hospitality segment remains its best performer and should continue to do well in 2H22 should corporate travel return in force.
- Maintain BUY. Increase target price for City Developments to S$9.87.
City Development (CDL) reported a record 1H22 due to divestment gains.
- City Developments (SGX:C09) reported a 24% y-o-y increase in 1H22 revenue to S$1.5b while at the PATMI level, the company saw a record PATMI of S$1.1b on the back of divestment gains from the sale of Millenium Hilton Seoul as well as gains from the deconsolidation of CDL Hospitality Trusts (SGX:J85). Excluding these gains, the company missed our and consensus’ estimates due to slightly lower-than-expected property development revenue and higher-than-expected costs.
- Another bonanza. City Developments declared a special interim dividend of S$0.12/share to reward shareholders post the divestment gains outlined above. We would not rule out another special dividend on top of a final dividend when City Developments announces its 2022 results next year given that the company has sold another two assets via en bloc in 1H22, which are Golden Mile Complex and Tanglin Shopping Centre.
- Continued recovery in hospitality segment. City Developments witnessed the continued rebound of its hotel operations with all major metrics showing growth, eg room occupancy rose 16ppt to 59% in 1H22 while RevPAR jumped 110% to S$114. The company remains bullish as it believes that the return of corporate travel in 4Q22 will provide a further boost. We believe that all of its hospitality markets should continue to see sequential improvement over the course of 2022.
- Property development – still some challenges in Singapore. Management highlighted the continued difficult conditions for Singapore property developers due to the “5-year ABSD rule” (developers have a 5-year deadline to develop the residential site and sell all the available units, otherwise it will have to pay 25% of the land price that it paid).
- With its landbank running low, City Developments has had to bid at government land sales as well as en blocs and it noted that this landbank bidding has been hotly contested. The company is nevertheless satisfied with what it has in its launch pipeline, with more than 2,000 units (ranging from mass market to high-end projects) coming up for sale, which should reduce pressure on it to engage in the bidding frenzy.
- Living sector – not a new segment but a greater emphasis for the future. During the analyst briefing, City Developments's management spent time to elaborate on its strategy for the living sector segment where it is looking to invest more capital going forward. This sector comprises of its traditional hospitality business as well as its relatively new purpose built students’ accommodation (PBSA), private rented assets, affordable housing, and senior housing.
- Management disclosed that in particular, it will look to invest into more PBSA assets in the UK, Japan and Australia. As for exit options, City Developments stated that it will look to divest these assets into other City Developments entities (either its public REITs or private funds) with sales to third parties being the least preferred option.
Manageable debt levels.
- City Developments disclosed that its average interest rate for 1H22 was 1.9% but did highlight that it will incur higher interest cost in 2H22 due to the higher base rates.
- While City Developments has around S$2.7b in debt due in 2022, 66% of this has been refinanced via bank agreements and a further 23% are short-term loans subject to annual review.
- As at end-1H22, City Developments’s net gearing was 83% vs 99% at end-21, and it had S$4.1b in cash and available committed credit facilities.
City Developments - Earnings forecast revision and recommendation
- We have upgraded our 2022 earnings forecast for City Developments to take into account the divestment gains. Note that our 2022 PATMI forecast for City Developments does not include gains from the two en bloc properties – Golden Mile Complex and the Tanglin Shopping Centre.
- We retain our BUY rating on City Developments with a higher target price of S$9.87 (previously S$9.20). Our RNAV has risen slightly from S$13.70 to $14.10 to account for the divestment gains in 1H22. Our target price is pegged to a 30% discount to RNAV which is largely in line with the company’s historical discount to RNAV.
- We note that City Developments disclosed during its 2021 results briefing that its RNAV (including revaluation of its hotel portfolio) was S$18.86 per share as at end-21. During the analyst briefing, City Developments stated that its board had discussed a potential share buyback scheme at length which would support the share price in the near term, in our view.
- See
- Catalysts:
- Continued economic recovery from COVID-19, especially with the resumption of leisure and business travel.
- Implementation of a share buyback scheme in 2H22.
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-08-12
SGX Stock
Analyst Report
9.87
UP
9.200
