• 3Q18 PATMI +10.4% YoY
• Resilient ASPs but volumes softened
• Broadening exposure to UK

3Q18 Results In-line With Our Expectations

City Developments Limited (CDL) reported its 3Q18 results which were in-line with our expectations. Revenue jumped 17.7% YoY to S$1,016.9m due largely to higher contribution from its New Futura project, while PATMI increased 10.4% YoY to S$161.8m. For 9M18, CDL’s revenue jumped 37.3% to S$3,434.2m, while PATMI of S$446.6m represented growth of 25.4% and formed 80.7% of our FY18 forecast.

Encouraging Sales Launch for Whistler Grand

In Singapore, CDL and its JV associates sold 787 residential units with a combined sales value of S$1.56b for 9M18. The latter was down 11.6%. Notwithstanding the decline, CDL has continued to drive its sales momentum.

As at 4 Nov, 104 units of its New Futura project have been sold at an ASP above S$3,500 psf; 544 units (out of 600 released) of the Tapestry have been sold; 12 units (out of 50 released) of its South Beach Residences found buyers, including its super penthouse for S$26m. CDL had also launched its Whistler Grand project on 3 Nov, and 160 out of the 240 units released were sold at ~S$1,380 psf.

Down But Not Out; Value Has Emerged

While industry headwinds would likely persist in the foreseeable future, we do see some positives from

i) CDL’s share buybacks which are supported by its strong balance sheet (net gearing of 23%),

ii) resilient ASPs which are tracking above our initial expectations,

iii) diversification of income streams with the acquisitions of two UK investment properties, notwithstanding Brexit uncertainties, and

iv) upcoming launches have already obtained Provisional Planning from URA and thus will not be subjected to the latest revision in guidelines on the minimum average unit sizes.

CDL’s share price has dipped 24.6% since the property cooling measures were announced on 5 Jul 2018. At its current closing price of S$8.45, we believe negatives are priced in and value has likely emerged.

After fine-tuning our assumptions (recent acquisitions, M&C share price and smaller shares outstanding) and applying a lower RNAV discount of 35% (previously 40%) on account of less dire-than-expected market conditions, we derive a higher fair value estimate of S$10.73 (previously S$9.81).

Source: OCBC Research - 12 Nov 2018