• CDL reported 1Q14 revenue of S$734.2 mil (-5.4% y-o-y), PATMI of S$119.7 mil (-13.1% y-o-y). Excluding divestment gains in 1Q2013, PATMI represented 4.0% y-o-y gain.
• Current gearing remains low at ~27%, allows for new value accretive real estate deals.
• Maintain “Accumulate” rating, with optimistic outlook on future deals, a TP of S$11.26 based on 30% discount to RNAV S$16.08.

The Group managed to record 1Q14 revenue of S$734.2 mil (-5.4% y-o-y), PATMI of S$119.7 mil (-13.1% y-o-y). The lower PATMI was primarily due to lack to divestment gains. Outside of the divestment gains in 1Q2013, this PATMI would have represented a 4.0% y-o-y gain.

The property development segment remains the largest contributor of the Group’s pre-tax profits. CDL saw revenue from this segment dipping -18.3% y-o-y. In spite of this, pre-tax profit showed 4.3% increment over 1Q2013. This was due to maiden profit contribution from joint venture projects namely; Bartley Ridge, The Inflora and Echelon as well as higher contribution from Bartley Residences. The rental properties segment reported lower earnings (-32.8% y-o-y) due to the absence of the aforementioned divestment gains. The stellar appreciation of the sterling pound brought about stronger revenue contribution from M&C (+4.9% yo-y). Even with higher hotel revenue, pre-tax profit achieved was lower.

Management has credited the substandard performance to “social and political uncertainties in some parts of Asia which had an impact on the trading profits”. The net gearing ratio remains low at 27%. Additionally, CDL’s books do not include the valuations surplus on investment properties. This indicates that its “true” gearing ratio is much lower.

How do we view this

CDL’s 1Q14 results were largely in line with our estimates. While top line revenue contribution from its property segment took a hit, better operation controls allowed it to deliver positive growth in profits. On the ground, we continue to see healthy take-up rates for its residential launches and expect consistent returns from its property projects. The hotel segment was poised for a strong showing in 1Q2014. The political and social events negatively affected the Asia hotel operations. We do not anticipate long lasting effects of such events, and reckon that the hotel segment would see greater profit contributions in the remainder of FY14.

The company possesses a strong balance sheet, with cash & cash equivalents of S$3.34bn and low gearing ratio of 0.27x. We expect CDL to secure value accretive projects/acquisitions in FY2014 and beyond.

Investment Action

We maintain “Accumulate” rating, with an optimistic outlook on future value accretive real estate acquisitions. We value CDL at TP of S$11.26.

Source: Phillip Securities Research - 16 May 2014