1HFY14 results: 

Revenue and PATMI tracking below consensus and our FY14 estimates. CIT reported 1HFY14 revenues of SGD1.6bn and PATMI of SGD258m (c46% of our FY14e revenue of SGD3.4bn and c41% of our FY14e PATMI of 628m). Compared with consensus, revenues were c46% of FY14e consensus revenues of SGD3.5bn and c40% of consensus PATMI of SGD652m &ndash thus, revenues and PATMI are both tracking below consensus and our expectations. However, given lumpy earnings&rsquo recognition (accounting standards), earnings are less likely to be a driver of share price performance, in our view. Post results, we have left our estimates unchanged.

 

CIT has stepped up its overseas investment activity with the purchase of six freehold properties in Greater London for a total of GBP157m - these include a mix commercial properties, car parks, etc. which CIT intends to convert into residential properties. Opportunities in developed markets such as US, Japan and Australia have been on the radar for management for some time now, in addition to the existing overseas market platforms in London and China. In Singapore, CIT remains well positioned having progressively sold off large portions of its residential land bank. In particular, it has little exposure to mass residential, the segment most at risk in our view. 

 

Launches in 1H14 did relatively well &ndash Commonwealth Towers (310 of the 400 units launched sold in the 845-unit development) and Coco Palms (670 of the 780 units launched sold in the 944-unit development). In 2H14, CIT intends to launch New Futura in Leonie Hill, which we believe will test the high-end market. South Beach (office now 20% committed) is on track to complete on time (office: end-2014 and hotel: 1Q2015).

 

Analysis

It is actively looking at Japan and Australia and hopes to establish platforms in these markets by year end. In addition, CDL is seeking to develop fund management products, its top brass said yesterday as the group posted a 32.8 per cent drop in second-quarter net earnings to S$137.86 million. First-half net profit also fell 24.9 per cent to S$257.53 million.

On fund management, where the group lags behind its Singapore peers such as CapitaLand and Keppel Land, CDL' s strategy will be to initially monetise some of its existing assets. This would build a track record, giving for instance fixed returns to investors while providing long-term capital appreciation. In the longer run, CDL will not rule out a " discretionary" model, as is adopted by many private-equity outfits, of raising cash from investors first before purchasing assets.

" If you look at our competitors, many of them have multi-billion-dollar funds management businesses. Subject to market conditions, I don' t see a reason why at some point, a five to 10-year horizon, we would not be targeting that type of business," said Grant Kelley, who was appointed CEO of the company earlier this year. He was formerly from Apollo Global Management and Colony Capital.

Kwek Leng Beng, CDL' s executive chairman, said the group has not taken full advantage of its hotel portfolio, held under its London-listed subsidiary Millennium & Copthorne Hotels (M& C). He floated some possibilities. " One day if it is prudent and viable, why don' t we throw all our hotels into a Reit (real estate investment trust) and make this the biggest Reit ever in Singapore? As another example, why don' t we get all our provincial hotels in the US plus UK, put them into a Reit? That is another model."

As for expanding Down Under and in Japan, CDL' s strategy is likely to be dominated by hotels, commercial and residential - the three asset classes it is best at in the Singapore market. " We are actively looking at a number of opportunities currently ... In the next 12 months, we hope we' ll have some concrete and exciting investments that will be consummated," said Mr Kelley, declining to give details.

Late last month, Australian Financial Review reported that CDL and Australia' s Stockland Group are considering bidding for Leighton Holdings' US$7 billion residential and commercial property portfolio. The Leighton Properties business is expected to fetch up to A$500 million (S$580 million), according to the report.

At yesterday' s briefing, CDL also gave an update of the headway it has made in other overseas markets: China and UK. It has picked up six freehold properties in UK since last year for £ 157 million (S$326 million): two in Knightsbridge and one each in Chelsea, Belgravia, Croydon and Reading. The intention is to reposition them predominantly as residential projects to tap the undersupply in the London housing market.

Said Mr Kwek: " I personally believe that now with Middle East in bad shape, more and more funds and rich individuals will park their money and buy something" in London.

Later this year, the group could launch its first major China project - Eling Residences in Chongqing.

In Singapore. the group may release a 124-unit freehold condo, New Futura, on Leonie Hill Road in Singapore in the second half of this year, subject to market conditions.

One-fifth of the 500,000 sq ft of offices at its South Beach Tower in Singapore has been committed. Besides Rabobank, tenants clinched include De Lage Landen, TMF Group and Bain & Company advanced negotiations are going on with a few more major potential tenants. The 34-storey tower is expected to be completed by year-end and CDL hopes to pace out leasing activity to ride on rising office rents.

The drop in CDL' s Q2 and H1 bottom lines was due to the absence of significant divestment gains which had boosted the same year-ago periods. In Q2 2013, CDL sold 100G Pasir Panjang, after selling strata units in Citimac Industrial Complex, Elite Industrial Buildings 1 and II in Q1 2013.

CDL' s revenue rose 5.9 per cent to S$861.15 million in Q2 and edged up 0.4 per cent in H1 to S$1.595 billion. Shareholders will receive a special interim dividend of four cents per share, down from eight cents in H1 last year.

Earnings per share fell to 14.5 Singapore cents in Q2 2014 from 21.8 cents in Q2 last year. The counter ended 27 cents lower at S$9.78 yesterday. CDL released its results before the stock market opened.