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The case for CityDev
By:
Gwyneth Yeo
SINGAPORE (Aug 11): OCBC Investment Research and CIMB are hanging on to their &ldquo buy&rdquo recommendations for City Developments with target prices of $9.89 and $10.38 respectively.
To recap, CDL reported a 32% rise in revenue to $1.1 billion although earnings remained flat at $133.8 million in 2Q16. For 1H16, earnings fell 6.8% to $239 million. CDL declared a special interim dividend of 4 cents.
OCBC analyst Eli Lee says CDL&rsquo s stronger revenues came from the progress recognition from Lush Acres which was fully sold upon attaining its temporary occupation permit in 2Q16. However, this was offset by foreign exchange losses, lower finance income and higher tax expenses.
To date, CDL has sold 31 units at the 174-unit Gramercy Park development, while the Jewel@Buangkok, Coco Palms and The Brownstone were also 100%, 90% and 73% sold, respectively. Over the next few months, the group also plans to launch the 519-unit Forest Woods development in Paya Lebar.
Meanwhile, CIMB analyst Lock Mun Yee says CDL&rsquo s overseas residential projects are expected to contribute to the group&rsquo s results for 2H16. This follows the RMB 2 billion ($404 million) in sales that were locked in for Hong Leong City Center (HLCC) Phase 1 and another £ 16.3 million ($28.4 million) that were locked in for Hanover House in UK. In addition, &ldquo sales of UK and Australia projects when completed should boost FY2017 to FY2018 development income,&rdquo says Lock.
CDL&rsquo s hotel division had a different story to tell though. Pretax earnings fell 14% to $59 million, after revenue per available room fell 5.3% in London, 5.8% in New York, and 10.2% in Singapore.
As operating conditions remain challenging, Lock says rental income would remain flat as office and retail portfolio occupancy maintained at between 94% and 97%.
Still, CDL&rsquo s balance sheet remains &ldquo robust&rdquo according to Lee. CDL&rsquo s net gearing was 27% without factoring any fair value surpluses on investment properties, and the group had over $3.3 billion in cash and 10.1x in interest cover over 1H16.
At current levels, Lock notes the stock is trading at a 36% discount to its revalued net asset value of $13.85 while Lee sees &ldquo fundamental value over the long term&rdquo .
Shares of CDL closed 0.2% lower at $8.87.