Strong property presales. 2Q09 revenue inched up 1% yoy to S$787m. Property presales continued to drive the topline with The Arte (98% sold) and Livia (more than 80% sold) released in 1H09. This segment’s revenue grew 56% yoy to S$343m in 2Q09. The momentum is likely to be sustained by Volari, The Gale and potential new launches in the Hong Leong Gardens site, The Quayside isle and the former Albany site at Thomson in 2H09.
Offset by weaker hotels. A blemish was the hotel segment (M&C). Revenue and PBT fell 25% and 60% yoy to S$365m and S$25m respectively in the quarter, as RevPAR fell globally and the sterling pound weakened. We believe the results could have been worse if not for cost-saving measures. However, management is starting to see stability in Singapore, New York and London. The decline in the sterling pound is also starting to ease. M&C continues to trade at a trough P/BV of 0.5x.
Balance sheet and cash flow. Net gearing remained relatively low at 0.45x, still based on cost accounting of its investment properties. Operating cash flow stayed in positive territory and is expected to remain so on impending presales. In 2Q09, CityDev paid out S$190m for its share of convertible notes subscription to finance the development of South Beach. Management remains positive on the project. No impairments were made for development in the quarter.
Maintain Outperform. We retain our FY09-11 EPS and RNAV estimates for now. Our target price, still based on a 20% premium to RNAV, is kept at S$11.76. This set of results continues to highlight the group’s balance-sheet strength even as other developers aggressively mark down their asset values this season. We maintain our Outperform rating.
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