City Developments (CDL) is  trading at  a  25% discount  to RNAV, which is  below its historical mean. At this price level, we think valuations are undemanding.  We  assume  coverage  with  NEUTRAL  and  a  RNAVderived TP of SGD9.47 (1.2% upside).  We believe the market has likely priced in too excessive a discount on its SG residential exposure, and not affording time for its overseas diversifications to bear fruit.  

3Q14/9M14 results in line. CDL reported 9M14 PATMI of SGD387.7m,down 17.1%  primarily due  to  the  absence of divestment gains from noncore  investment  properties  last  year.  Excluding  these  gains,  PATMI would have increased 25.5% for YTD Sep 2014.

Coco  Palms  and  Commonwealth  Towers  are  77%  and  41%  sold respectively. 9M14 profits were booked in from H2O Residences, Jewel @  Buangkok,  UP@Robertson  Quay,  The  Venue  Residences  BuckleyClassique  (temporary  occupation  permit  "TOP"  was  obtained  in  Aug2014) and  Blossom  Residences  EC  (TOP  was  obtained  in  Sep  2014). Coco  Palms  and  Commonwealth  Towers,  launched  in  May  2014,  are registering  healthy  sales.  According  to  the  Urban  Redevelopment Authority  (URA), ASPs for  Coco Palms  and Commonwealth Towers are SGD1,003/SGD1,615psf  respectively  (see  Figures  4-5),  with  smaller units on average being sold at the latter.  

South  Beach  development  progressing  well  with  90%  precommitment  by  end-2014.  The  first  tenant  is  expected  to  commence business in  1Q15.  Leases have  been secured for one-third of the prime office  space.  Another  50%  of  leases  are  being  firmed  up  and  South Beach  Consortium  is  currently  in  advanced  negotiations  with  potential tenants  to  take  up  another  10%.  CDL  is  confident  of  hitting  ~90% occupancy by the end of the year.

Takes time to diversify.  We expect it will take some time before CDL's overseas  residential  projects  start  to  contribute  to  earnings.  In  China,CDL is still pending the launch of Eling Residences and Suzhou HLCC, dependent  on  market  conditions.  In Japan,  CDL  plans  to  develop luxurious  high-end  condominiums  at  the  former  residence  of  Seiko's founder, Mr Kintaro Hattori's reehold land site in Tokyo.

Source: OSK-DMG