City Developments - RHB Invest 2022-12-02: On The Right Course


City Developments - On The Right Course

  • City Developments (SGX:C09)'s 3Q business updates were in line and showed continued pickup across all three market segments.
  • City Developments’s strategy of deleveraging its non-core assets over last two years has placed it in a relatively better balance sheet position amid rising interest rates. Key earnings drivers continue to be its healthy unbilled sales from Singapore residential projects and hospitality segment recovery.
  • Despite year-to-date share price outperformance (+22%), the stock remains undervalued at ~50% discount to RNAV.

Development portfolio well positioned despite rising rates and cooling measures.

  • Residential sales in Singapore projects remained strong with Copen Grand executive condominium (EC) (50% stake) fully sold out since its launch in October, adding an estimated ~S$0.5bn in presales revenue. With this, we estimate City Developments has unbilled residential sales revenue of ~S$5bn that can be recognised over the next three years.
  • City Developments has also recently won another EC project at Bukit Batok West Avenue 5 in September, which should see similar strong demand considering the EC segment is relatively less impacted by cooling measures and interest rates (deferred payment options). It also has four residential projects (>1,000 units), which are expected to be gradually rolled out in 2023-2024.

Sharp recovery in the hospitality segment to continue in 4Q.

  • 3Q revenue per available room (RevPAR) for its hospitality portfolio jumped 89% y-o-y and was up 43% vs 1H, boosted by occupancy and room rate increase across all markets.
  • The Singapore, UK, and US markets, which account for the majority of City Developments's hospitality portfolio, were the best performers with RevPAR (3Q) rising 167%, 165% and 60% y-o-y. Overall gross margins also rose 14ppts to 36.2% indicating that revenue growth well exceeded inflation pressures.
  • Near-term outlook remains positive despite an anticipated slowdown in 2H23.

Fund management’s assets under management (AUM) less likely to hit US$5bn target by 2023.

Vijay Natarajan RHB Securities Research | https://www.rhbgroup.com/ 2022-12-02
SGX Stock Analyst Report BUY MAINTAIN BUY 9.750 SAME 9.750