• 4Q18 PATMI fell 55% YoY due to oneoffs
• Focus on recurring income streams
• Attractively valued

4Q18 Results Soft, But In-line With Our Expectations

City Developments Limited’s (CDL) 4Q18 results were in-line with our expectations. Revenue and PATMI fell 40.6% and 54.7% YoY to S$788.3m and S$77.9m, respectively. If we exclude impairment losses, allowances and divestment gains, PATMI would instead have increased by 17% YoY.

For FY18, revenue rose 10.3% to S$4,222.6m. PATMI of S$557.3m represented growth of 6.7% and this constituted 99.9% of our forecast. A special final dividend of 6.0 S cents/share was declared, on top of a final ordinary dividend of 8.0 S cents/share. This brings full-year DPS to 20.0 S cents, higher than the 18.0 S cents paid in FY17.

5 New SG Launches in 2019 and Growing Its Recurring Income

CDL plans to launch five projects in Singapore this year (2,434 units), with three in 1H19 and two in 2H19. First up would be Boulevard 88 in Mar. This freehold 154-unit luxury project (40% stake) is located on Orchard Boulevard and we expect ASPs of ~S$3,500 psf. The other projects are Amber Park (freehold, will come with a unique rooftop running track overlooking East Coast Park), Haus on Handy (3-min walk to Dhoby Ghaut MRT), Sumang Walk EC (likely to be a hot-seller) and Sengkang Central (50%-JV with CapitaLand located near Buangkok MRT).

Another focus would be to grow its recurring income streams. The acquisition of two freehold commercial properties in UK last year was good testament to management’s execution capabilities, given that rental reversions of ~15% for renewal leases were secured since the completion of the acquisitions. There was also added income visibility as leases typically have long tenures of 7-10 years in the UK.

Gearing Up But Balance Sheet Remains Strong

CDL’s net gearing ratio increased to 31% (endFY18) from 9% (end-FY17). However, if we take into account revaluation surpluses amounting to ~S$4.4b, its net gearing would be 23%. Similarly, its historical P/B ratio (as of 21 Feb closing price) would be 0.60x instead of 0.86x if we take into consideration revaluation surpluses.

After adjustments, our fair value is lowered slightly from S$10.73 to S$10.68. Since our upgrade to a ‘Buy’ on 12 Nov 2018, CDL’s share price has appreciated 12.9% (based on 21 Feb’s closing).

Source: OCBC Research - 22 Feb 2019