• 3Q15 numbers below expectations
• Domestic resi mkt remains subdued
• FV estimate lowered to S$8.35

3Q15 results a marginal miss

3Q15 PATMI decreased 16% YoY to S$106.4m mainly due to lower contributions from property development and the absence of a one-time dilution gain at an M&C associate in 3Q14. In terms of the topline, 3Q15 revenues dipped 39% to S$809.3m – this was largely due to lower property development revenues which fell by S$522.4m to S$228.0m given the absence of contributions from Blossom Residences EC (attained TOP in Sep14), while revenues from the hotel and investment properties segments remained relatively stable.

Overall, we judge this quarter to be a marginal miss versus our and market expectations, given the larger than anticipated loss of traction at the property development segment, and we now tweak our FY16F and FY17F PATMI forecasts down by 22% and 12% to S$517.5m and S$650.8m, respectively.

Wait and see for South Beach Residences launch

Management is executing well at the mega South Beach mixed use project; the office space is now 96% leased and the hotel component has begun operations. We understand that the 190-unit South Beach Residences will be completed in 2Q16 and the group will launch sales when market conditions are deemed to be more favorable. The group continues to cautiously acquire landbank and recently won a tender for a 14k sqm residential site at Lorong Lew Lian for S$321.0m (2.6% above 2nd highest bidder) and plans to develop a condominium with over 500 units.

Confident in China’s long term outlook

At the group’s hotel segment, pre-tax profit decreased by S$28.4m to S$59.2m in 3Q15, and management reports adverse trading conditions in Asian markets, particularly in Singapore which is facing increased pressure on labor costs. In China, more than 80% of Tower 1 of the Suzhou Hong Leong City Center Ph 1 has been sold while Tower 3 was recently launched. Management indicates that it remains confident of the long term outlook for China’s real estate market. Maintain HOLD; our fair value estimate dips to S$8.35 (versus S$9.53 previously) with softer assumptions for residential home prices in our valuation model.

Source: OCBC Research - 13 Nov 2015