City Development - Expediting more launches

Monday, July 6, 2009

Q109 S$83.1m PATMI comprise 16% of UBS FY09e and 18% of consensus. Though results were 18% below our forecast, we think it was a decent set of numbers given the challenging global backdrop. The variance was due partly to timing on residential project recognition, and a S$7.2m loss from the group’s non-core segment. There were no major surprises otherwise. Q109 snapshot gearing at 48%. Management is optimistic on the outlook and is prepping for more launches.

We believe Q109 GDP contraction of 11.5% YoY marks the trough and subsequent quarters could post incremental recovery. Large cap property stocks have consistently been a key performing sector in a bounce and provided the best proxy for the improved sentiment.

Our RNAV assumes peak to trough decline of 41% for prime residential prices and 24% for mass-market. The MLC stake is valued at GBP225p versus its GPB581p book value. We estimate for every 10p increase in MLC’s share price above GBP225p, CDL’s RNAV would increase by S$0.04.

We believe many investors are underweight property and may continue to seek exposure in a pullback. Coupled with improving macro fundamentals, we believe this could lead blue chip property stocks to trade at a premium to RNAV.

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