• CDL reported 4Q13 PATMI at S$221.0mn (-11.1% y-o-y), bringing FY13 PATMI to S$683.0mn (+0.7% y-o-y)
• Undemanding valuation: market over-corrected amidst introduction of cooling measures
• Initiate with “Accumulate”, with a TP of S$11.16 based on 30% discount to RNAV S$15.90.

CDL announced its 4Q13 and FY13 results on 27 February 2013. For its full year results, revenue was reported at S$3,162.1mn (-5.7% y-o-y). FY13 PATMI of S$683.0mn (+0.7% y-o-y) was largely unchanged from the previous year. Net gearing is lowered to 0.20x (FY12: 0.25x). In 4Q13, CDL welcomed a new CEO, Mr. Grant Kelley. The new CEO has wide experience in real estate investment and used to serve as Head of Real Estate (Asia Pacific) for Apollo Global Management.

How do we view this

Amidst a challenging FY13 for the real estate sector, CDL delivered commendable results. The lowered profit contribution from the development properties segment was expected, as CDL saw moderated recognition of revenue and profits from its previously sold projects. Although there was little growth in revenue from its hotel operation, the profit contribution from this segment was better than expected considering the drop in available room nights due to numerous ongoing AEIs for its hotel assets.

On outlook, we continue to be positive for the Property Development segment. In FY2013, the number of units sold was 34% higher than a year ago. Due to accounting rules, revenue recognition for these projects are largely on a percentage-of-completion basis. These projects continue to replenish CDL’s development pipeline. Additionally, CDL has 3 completely sold Executive Condominiums that have yet to be recognized. These will contribute to stronger future earnings. The company possesses a strong balance sheet with cash and cash equivalents of S$2,871.3mn and low gearing ratio of 0.20x. This will allow the new CEO to actively seek out new opportunities overseas. We expect CDL to secure value accretive projects/acquisitions in FY2014 and beyond.

Investment Action

We initiate coverage on CDL with an “Accumulate”. We are positive on 1) Undemanding valuation based on current projects and investments 2) Higher revenue/profit forecast for its development properties based on previously sold projects 3) New management, strategic direction to expand overseas and strong balance sheet. We value CDL at TP of S$11.16.

Source: Phillip Securities Research - 3 Mar 2014