• 2Q19 PATMI fell 26.4% YoY
• Encouraging sales momentum
• Looking to unlock value

2Q19 Results Beat Our Expectations

City Developments Limited (CDL) reported its 2Q19 results which exceeded our expectations. Revenue declined 37.5% YoY to S$850.4m and this was attributed largely to the lower profit recognition for development projects. PATMI fell by a smaller magnitude of 26.4% YoY to S$162.4m due to lower net finance costs, income taxes and higher share of after-tax profit of associates and JVs. This formed 30.7% of our FY19 forecast.

For 1H19, CDL’s revenue decreased by 34.0% YoY to S$1,596.5m but PATMI rose 18.3% to S$362.0m, with the latter constituting 68.5% of our full-year forecast. A special interim dividend of 6.0 S cents per share was declared, similar to 1H18.

Encouraging Sales Momentum for SG Residential Projects

During 1H19, CDL sold 505 residential units (-22.4%) with total sales value of S$1.55b (+20.6%) in Singapore, while 347 units were sold in China with a combined sales value of RMB1.08b (~S$213m). Project launches in 2H19 so far include Haus on Handy (25 units out of 30 released sold at ASP of >S$2,850 psf), Nouvel 18 under PPS 3 (18 units out of 30 released sold at ASP of >S$3,300 psf) and Piermont Grand EC, which saw very strong take-up of 375 units sold on launch weekend at an ASP of S$1,080 psf. Project ASPs have largely tracked above our expectations so far. Looking ahead, upcoming launches include Sengkang Grand Residences in 4Q19 (JV with CapitaLand; 680 units) and Sims Drive (JV with Hong Leong Holdings; ~560 units).

Sprucing up its Portfolio

Management is currently evaluating redevelopment opportunities within its portfolio to unlock value for its shareholders. Potential targets include Fuji Xerox Tower and City House, both of which may qualify for the CBD Incentive Scheme under the URA 2019 Draft Master Plan. Other redevelopment possibilities include Liang Court (JV with CapitaLand) and Central Mall. Meanwhile, CDL has acquired the remaining 62.5% interest which it does not own in the non-residential components of PPS 1, which comprise W Singapore (Sentosa Cove and Quayside Isle), valued at S$393m.

While management alluded that W Hotel is performing well, it intends to carry out a small scale AEI on the hotel. Following recent active acquisitions, CDL highlighted that its comfortable net gearing ratio (including fair value gains) would be 50-60%, versus 32% as at 30 Jun 2019. We maintain our S$10.68 fair value on CDL.

Source: OCBC Research - 13 Aug 2019