• 1Q figures in line
• SG housing demand remains muted
• Maintain SELL

1Q14 PATMI down 13.1% YoY

1Q14 PATMI came in at S$119.7m, down 13.1% YoY mostly due to the absence of disposal gains recorded in 1Q13 from the sale of strata units in Elite Industrial Building I, Elite Industrial Building II and Citimac Industrial Complex. Without these gains, PATMI would have increased 4.0% YoY. We judge 1Q figures to be broadly within expectations and YTD PATMI now constitutes 19.1% of our full year forecast. In terms of the topline, 1Q14 revenues fell 5.4% to S$734.2m due to a lower contribution from the property development segment. Over the quarter, we also saw maiden profit contributions from JV projects: Bartley Ridge, The Inflora and Echelon.

Difficult conditions in domestic housing amarket

The Venue Residences and Shoppes, a mixed development near Potong Pasir MRT station with 266 apartments and 28 retail units, was launched in Oct 2013, and about 60 apartments and 15 retail units have been sold to date. At the 616-unit Jewel@Buangkok, 415 units have been sold since its launch in Jun 2013. Bartley Ridge (868 units) and D’Nest (912-unit) are now both 94% sold. The group indicates that it continues to anticipate a cautious domestic residential market with moderated volumes ahead; already in 4Q13 we saw sales volumes (excluding ECs) slowing 32.1% QoQ to 1,744 units sold in 1Q14 versus 2,568 in 4Q13.

Anticipating harsher trading conditions at hotel subsidiary

The group’s hotel subsidiary M&C reported revenue increasing 5.9% YoY to GBP175.3m, with global RevPar increasing 2.5% YoY to GBP58.23. Management reports that it anticipates harsher trading conditions and has adjusted trading strategies at some markets to limit the impact on RevPar. Maintain SELL on CityDev with an unchanged fair value estimate of S$8.72; we remain cautious on the stock due to headwinds in its core development business. With a weak domestic outlook, management’s strategy of accelerating its diversification into overseas growth markets is sound but a meaningful repositioning would likely take some time.

Source: OCBC Research - 15 May 2014