• 4Q19 PATMI rose 12.5% YoY
• Avenues to unlock value in FY20
• Hotels business most badly hit by COVID-19

FY19 Results In-line With Our Expectations

City Developments Limited’s (CDL) FY19 results were in-line with our expectations. Revenue fell 18.8% to S$3,428.7m due largely to lower contributions from residential projects in Singapore. However, PATMI inched up 1.3% to S$564.6m and this formed 97.6% of our FY19 forecasts. For 4Q19, CDL’s revenue and PATMI jumped 20.1% and 12.5% YoY to S$946.9m and S$87.7m, respectively.

A final and special dividend of 8 and 6 S cents per share was declared, similar to 4Q18. Including the interim DPS of 6 S cents, total FY19 proposed dividends amounted to 20 S cents per share, unchanged from FY18. Management disclosed its estimated RNAV/share at S$16.46, which we believe is conservative, as it only takes into account the revaluation surpluses of its investment properties. Its development properties and hotels are taken at cost for this calculation.

Seeking Various Avenues to Unlock Value for Shareholder

CDL sold 1,554 residential units in Singapore in 2019, representing a 40% jump, while sales value of these transactions increased 49% to S$3.27b. Management highlighted that its residential sales in Singapore have not been affected much by the COVID-19 outbreak, although the high-end segment has seen some negative impact. It plans to launch its Sims Drive project in 1H20 (566 units), while the Irwell Bank Road GLS site (near the upcoming Great World MRT station) which it won in early Jan could be launched in 2H20 or early 2021.

The redevelopment of the Liang Court site into an integrated riverfront development (JV with CapitaLand) is another avenue for CDL to unlock value given the attractive land cost. Management highlighted that it was potentially seeking to spinoff its UK commercial properties, with a new listed REIT the preferred platform. CDL is also studying the possibility of redeveloping its Fuji Xerox Towers building to rejuvenate its portfolio, as this could potentially garner a 25% uplift in GFA under the government’s CDB Incentive Scheme.

Volatile times ahead for Hotels business Unsurprisingly, CDL mentioned that its Hotels business has been the most badly hit by the COVID-19 outbreak. Occupancy rates for its Singapore hotels are around the 40-50% level, while impact is limited for its Europe and UK assets for now. Management cautioned that it is monitoring the situation in Italy, as this could have negative spill-over effects in the region.

Meanwhile, CDL has targeted capex of S$140m in 2020 to refurbish its M&C portfolio, and will look to spend ~8-10% of the group hotel revenue on capex over the next couple of years. After adjustments, our fair value estimate inches down marginally to S$12.01 (previously S$12.02), pegged to a 35% discount to our RNAV forecast.

Source: OCBC Research - 27 Feb 2020