City Developments Limited

OCBC on 15 Aug 2012

CDL reported 2Q12 PATMI of S$137.7m, down 38% YoY mostly due to a lower property development contribution and the absence of disposal gains. Though YTD figures appear to be tracking below pace, we are not overly concerned and expect maiden revenue recognition from several substantially-sold projects to roll in over 2HFY12. Take-up rates at launched projects remained healthy with 1,299 units sold in 1H12 (versus 809 in 1H11). The hotel subsidiary M&C reported 1H12 PATMI of GBP58.4m - down 6% mostly due to refurbishments - though RevPar was up 4.6% on a like-for-like basis. Given the current environment, we continue to view CDL as one of the best-of-class, amongst blue-chip developers, in terms of execution and strategy. Maintain BUY with an increased FV of S$13.10 (15% RNAV disc.), versus S$11.53 previously, as we update its listed holdings’ valuations and lower the RNAV discount from 20%.

Expect earnings to track faster in 2H12
CDL reported 2Q12 PATMI of S$137.7m, down 38% YoY mostly due to lower profits from its property development segment and the absence of disposal gains. 2Q12 topline came in at S$787.8m - a 20% YoY decrease, again mainly from weaker property development contributions. Though YTD figures appear to be tracking below pace, we are not overly concerned and expect maiden revenue recognition from several substantially-sold projects to roll in over 2HFY12.

Healthy pace of sales at domestic projects
We continue to see healthy take-up rates at launched projects with 1,299 units sold in 1H12 (versus 809 in 1H11). During 2Q12, CDL previewed the 70-unit UP@Robertson Quay with 20 units sold (25 launched). Sales at earlier-launched projects also kept up a decent pace in 2Q12 – an additional 19%, 12% and 6% were sold at Bartley Residences, Palette and Blossom Residences respectively. We expect two new launches at Alexandra Rd and Pasir Ris Grove in 2H12.

Hotel RevPar up 4.6% on a like-for-like basis
CDL’s hotel subsidiary M&C reported 1H12 PATMI of GBP58.4m, down 6% mostly due to hotel refurbishments though RevPar was up 4.6% on a like-for-like basis. 1H12 RevPar, on constant currency terms, was up 10.6% and 4.4% in major markets Asia and Europe respectively, where a combined 73% of hotel revenue was derived.

Optimal execution given the current environment
We note CDL’s shares have appreciated 12% since we upgraded, against consensus, to a BUY three weeks ago. At this juncture, however, we still see value in CDL as management continues to execute, given the current environment, on an optimal strategy of sustaining earnings through effective land-banking while guarding against the downside with a strong balance sheet (21% net gearing, S$2.3b cash). Maintain BUY with an increased fair value estimate of S$13.10 (15% RNAV discount), versus S$11.53 previously, as we update its listed holdings’ valuations and lower the RNAV discount from 20%.