City Developments - Phillip Securities 2022-12-06: Hospitality Lifts Overall Profitability

CITY DEVELOPMENTS LIMITED (SGX:C09)

City Developments - Hospitality Lifts Overall Profitability

Copen Grand Executive Condominium (EC) fully sold within a month of launch. The recent launch of its 639-unit EC was well received. We estimate the Group achieved a comfortable ~25% profit margin on the project.
City Developments's hospitality segment continues to benefit from pent-up demand. RevPAR surged 110% y-o-y, driven by increases in room rates and occupancy in Singapore, US and London.

Maintain ACCUMULATE on City Developments (SGX:C09) with unchanged RNAV-derived target price of $8.86, a 35% discount to RNAV of S$13.64.
We view City Developments as a proxy for the Singapore residential market and hospitality recovery.

The recent launch of its 639-unit Copen Grand EC in Oct 2022, at $1,300psf, was well received and the project was fully sold within a month of launch. We estimate the breakeven price for the development to be at $1,050-$1,100psf. The price of $1,300psf therefore gives it a comfortable ~25% profit margin.

RevPAR surged 110% y-o-y, driven by a 46% increase in average room rate and 15.9% points (71% from 55.1%) increase in occupancy. Hotels in Singapore, US and Europe continued to recover faster than those in Asia, though average room rates increased across all regions, signalling a strong recovery momentum.

City Developments’s net gearing levels remain stable at ~83% for 3Q22 (83% for 1H22) with interest cover at 12.1x (16.5x for 1H22). With its strong cash reserves and available undrawn committed bank facilities totalling $4bn, we believe this gives City Developments sufficient capacity to replenish its landbank with its existing inventory levels now at lower levels as most of its launched projects have been substantially sold.

Residential sales declined in 3Q22 as lower inventory and the absence of new launches in 3Q22 weighed. City Developments sold 95 units with total sales value of $281mil vs 414 units with total sales value of $784.4mil in the same period last year.

Cumulative launch pipeline of 1,292 units after the launch of Copen Grand in 4Q22. The successful launch of Copen Grand EC bodes well for its other project in the same vicinity, another 512-unit EC Bukit Batok West, in its launch pipeline. With the recent launch, we believe City Developments would be looking to replenish its landbank.
Given the higher land prices and cost of construction, we believe City Developments is aiming for margins of at least 10% for new projects.

City Developments has launched a strategic review of its global hospitality portfolio that should help narrow the discount to its RNAV. Its restructuring plans for its hotel business, Millennium & Copthorne, in the next few years should help the Group crystalise value for its assets. These restructuring plans may include asset divestments, portfolio optimisation as well as a rebranding of its hotels to improve earnings and drive upside to NAV.

We view City Developments as proxy for the Singapore residential market and hospitality recovery. While land prices have trended up in recent years, redevelopment and off-market purchases should provide better margins, allowing it to replenish its inventory and participate in the peaking Singapore residential market.
See
City Developments's Share Price is trading at an attractive 40% discount to our RNAV/share of S$13.64. Asset monetisation, unlocking value through AEIs and redevelopments, and faster-than-expected recovery in the hospitality portfolio are potential catalysts for City Developments, which could help narrow the discount between City Developments's Share Price and RNAV.

Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2022-12-06

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 8.860 SAME 8.860