Expect FY12 earnings to fall. On the back of lower residential profit recognition and decelerating earnings growth from its hotel business, we expect CDL to report a full-year PATMI of SGD614.5m, which will be a 23.1% YoY decline. Profits are likely to pick up again in FY13, but in our view, CDL’s valuations remain rich vis-a-vis its rich cap peers. Maintain SELL.

All a matter of timing. Pre-tax profit from residential development slumped by 30% YoY for 9M12 to SGD273.7m, which is a main cause for the expected earnings decline in FY12. However, we note that it is largely due to the timing of profit recognition, given that profits from the already sold-out ECs, namely Blossom Residences and The Rainforest, can only be recognized upon completion, which are expected to be in 2014 and 2015 respectively. Credit must be given to CDL’s management as most of its ongoing projects are substantially sold. The Echelon at Alexandra View also achieved a very respectable 65% take up rate within its first month of launch in December 2012, just before the government’s introduction of the latest round of cooling measures.

Singapore hotels facing headwinds. Taking a cue from CDL Hospitality Trust’s (CDREIT SP) results, earnings growth from Millennium & Copthorne’s key market Singapore is likely to remain languid. Demand from both corporate and business travelers have softened due to the global economic malaise and management even guided that 1Q13 performance is likely to remain weak due to the absence of the bi-annual Singapore Airshow and the Lunar New Year falling later this year.

Execution’s good, but valuations are rich. CDL has proven that over time, it is able to achieve slightly better than expected ASPs for its residential projects. Nonetheless, trading at 15% discount to our revised RNAV, CDL’s valuations are richer than its peers. Maintain SELL, with a higher target price of SGD10.07, pegged at a 25% discount to our revised RNAV mainly due to a higher market valuation for UK-listed M&C, which has enjoyed an 11.3% price appreciation YTD.

Source: Maybank Kim Eng Research - 14 Feb 2013