City Developments

Kim Eng on 1 Mar 2012

Results in line. City Developments Limited (CDL) posted a slight 2% growth in full-year PATMI to $798.6m, in line with expectations. CDL has tweaked its launch pipeline, shelving plans to roll out any high-end project for the time being. We expect homebuyers to become increasingly price-sensitive. At this juncture, CDL’s valuations are looking rich and we are downgrading it to Sell.

Residential sales could slow in 2012. Property development continues to be the mainstay, contributing 47% of its FY11 pre-tax profits. While CDL sold more units in 2011 than in 2010 (1,818 vs 1,559), the total sales value was 17% lower at $1.75b, as most of the launches were mass market projects with lower prices. Management expects activity in the high-end segment to remain muted, and has shelved plans to roll out any high-end project for the time being.

M&C performing creditably. Hotel operations accounted for 25% of FY11 PBT, mainly as M&C marked a record year of revenue and profits. The hotels in the key gateway cities of Singapore, London and New York experienced robust RevPAR growth of 6.1%, 8.8% and 6.1% respectively in 2011. Leveraging on its robust balance sheet, M&C will selectively refurbish a few key hotels, which should improve their yields over the longer term.

Eyeing a bigger piece of the Chinese pie. The Group will be allocating another $500m to China, where it has already made three acquisitions since the inception of CDL China in 3Q10. Management believes that the long-term fundamentals of China’s property market remain attractive, and will be looking to acquire and develop residential or mixed-use projects in city-centre locations.

Sell on strength. The stock is now trading at 0.9x P/RNAV, slightly above its five-year mean of 0.87x. We believe that valuations are too rich now, given that selling prices continue to face downward pressure. We are downgrading CDL to Sell, with a target price of $9.30 pegged at a 25% discount to RNAV.