City Developments Limited – Shoring up recurring income

3 Mar 2020
  • 4Q19 revenue up 20%, lifted by all segments but FY19 revenue down 19% due to timing recognition of overseas and EC projects upon handover, recognised in FY18.
  • Take-up rate of 37% for total units in new launches in SG, up 40% YoY.
  • Maintain BUY with higher TP of S$11.89. Our RNAV-derived target price represents 0.98x FY20e P/NAV.

 

The Positives

+ Sold 1,554 units totalling S$3.3bn in sales in SG in FY19, accounting for 37% of total units in new projects. The 6 new launches in 2019 resulted in a 40% and 49% increase in the number of units sold by the group and its JV and associates in FY18 (1,113 units, sales value of S$2.2bn).

+ Focused on growing recurring revenue and geographical diversification. CDL’s recurring revenue increased by 22.3% due to the full year contributions from acquisitions, AEIs and the opening of HLCC’s mall and office components in FY18. In FY19, CDL acquired 4 rental apartment projects (S$69.3mn) in Osaka and Shanghai Hongqiao Sincere Centre Phase 2 (S$344mn). Investment properties grew by 13.9% from S$5,761mn to S$6,562mn as at end 2019, which will help to grow recurring income.

 

The Negatives

– Hotel segment in the red largely due to S$58.2mn in impairment losses and S$26mn privatisation cost and closure of hotels for refurbishment. This is the second consecutive year of impairment for the segment (FY18: S$94m). Revenue for the segment was up 4.6%/1.5% in 4Q19/FY19 due to the acquisition of W Singapore. The group has earmarked S$140mn in their 2020 Capex programme which will go towards refurbishments for selected hotel in New York, UK, Paris and Singapore which should help to lift RevPAR post completion.

 

Outlook

Renegotiation of the acquisition of 24% stake in Sincere Property Group which was announced in May 2019 due to changes in economic conditions since negotiation of the deal. CDL remains positive on its long-term view of China and remains keen on the investment.

CDL’s Fund Management AUM target of S$5bn by 2023 will help to grow recurring income. The group has plans to create a new REIT to hold its UK properties (Aldgate House and 125 Broad Street) and is one step closer to its’ fund management ambitions with the obtainment of Capital Market Services (CMS) License in 3Q19, allowing the group to set up a private fund and/or REIT.

Of the two assets located in the CBD that could qualify for the plot intensification incentives under the Master Plan, CDL is assessing the feasibility of redeveloping Fuji Xerox Towers, which could unlock up to 25% uplift in GFA and rejuvenate CDL’s portfolio.

Covid19’s impact was more pronounced in SG hotel operations, where occupancy is currently in the 40-50% region, and lower take-up of high-end residential projects by foreigner.

 

Maintain BUY with higher TP of S$11.89 (prev. S$11.82).

Our RNAV-derived target price represents 0.98x FY20e P/NAV. Rerating catalyst would be sustained sell-through rates and pick-up in the hotel business.

 

Latest Reports

Join Events & Seminars

Learn best practices and latest market outlook from experts and special guests

Hear & Ask our Experts

Join live weekly market calls

Read Popular News & Reports, Technical Pulses

at www.stocksbnb.com

Subscribe to our YouTube Channel

New video every week

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com