City Developments Limited Fully Paid Ord. Shrs SGX: C09 - Improving Performance Across All Segments; BU

City Developments Limited Fully Paid Ord. Shrs SGX: C09 - Improving Performance Across All Segments; BU 

    Keep BUY and TP of SGD9.75, 21% upside. City Developments’ 1Q operational update shows positive recovery across all its segments with strong tailwinds from economic reopening. A more solid earnings recovery is expected for the rest of the year from a rebound in the hospitality segment and strong sales momentum in its residential projects. Despite macroeconomic uncertainty, the group remains a deep value play trading at >50% discount to its RNAV, which in our view, limits downside.

    Strong demand for its latest new launch, Piccadilly Grand (May) with 315 of 407 units sold at the launch weekend, representing a strong take-up rate of 77% – comparable to its launches before the latest cooling measures. At ASP of SGD2,150 psf, we estimate margin to be at c.15%, indicating its strong pricing power and brand premium. The group has also added three new projects to its landbank since the start of the year ie Jalan Tembusu site (GLS bid), Central Square redevelopment, and off market acquisition of Upper Bukit Timah Road site, which augurs well amidst a lack of new supply in the Singapore market. CDL’s healthy unbilled residential sales of c.SGD4bn present good earnings visibility for FY22F-23F.

    Hotel operations to stage a strong comeback. Global portfolio revenue per available room (RevPAR) stood at SGD89.6, >2x of 1Q21, but 13% below 2H21, mainly due to the Omicron impact. Gross margin remained healthy at 14.6% (+8.5ppts YoY) and would have been much higher if we exclude impact from its New York hotels. With major easing of COVID-19 restrictions across all its key markets of Singapore, London and the US, we expect its hotel portfolio to stage a strong recovery in 2H22 and reach 70- 80% of pre-COVID-19 levels by end 2022, with a near full recovery anticipated by end 2023.

    Healthy balance sheet with a net gearing of 53% as at end March and an interest cover of 20.7x. While c.SGD5bn (47%) of its debt is maturing this year, we do not expect any significant increase to its current interest costs of 1.7% pa as part of the debt should be repaid from recent divestment proceeds. We believe the group will remain active on the acquisition front, especially Singapore residential landbank, which has been its forte. There is also more room for capital recycling by divesting its investment properties (office and retail assets) into a REIT or fund at an opportune time and grow its fund management business – which targets to achieve an AUM of USD5bn by 2023.

    No changes to our estimates, which is expected to rebound by >3x in 2022 led by the residential and hospitality segments. CDL has a high ESG score of 3.3 (out of 4.0), based on our in-house methodology due to its committed environmental efforts. As this ESG score is three notches above our country median score, we apply a 6% premium.

Source: RHB Research - 25 May 2022

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