City Development - Respectable set of results; solid sales record

Thursday, September 3, 2009

2Q09 results exceeded our forecasts on stronger devt profit recognition. CDL is one of the main beneficiaries of the domestic housing market recovery, adding more than S$1.3bn in sales YTD to already significant pre-sales. Sound balance sheet with diversified sources of capital provides flexibility for acquisitions. However, the positives are fairly priced at a 9% premium to RNAV. Hold.
Lower devt profits (-19% YoY, accounting for 60% of PBT) and hotel earnings (- 60% YoY) contributed to the YoY earnings decline. The Arte started to contribute in 2Q09 alongside high margined projects pre-sold in 2006/7. CDL has sold 1,031 units YTD amounting to sales value of S$1.34bn, including Volari and The Gale which are both >90% sold.

Revising up FY09-11 earnings by 9% on higher price and better pre-sales YTD 2H earnings should be stronger, underpinned by a seasonally stronger 2H for hotels, progressive development profit recognition and steady rental income. Mgmt plans to launch a further 400 units in 2H including the Hong Leong Gardens, Albany/Thomson projects and Quayside Isle. These targets are conservative.

Maintain Hold; TP revised to S$9.20 (fr S$8.40) pegged to parity to RNAV We revise our RNAV from S$8.40 to S$9.20 to reflect the re-rating of M&C, higher ASP and take-up rates. TP is pegged to parity to RNAV, on par with previous recovery years. Although we like CDL’s Singapore residential exposure, especially in the mass to mid segment, we think the stock is fairly valued at 9% premium to RNAV. Downside risks: reversal of economic trends, weaker than expected leasing demand; upside risks: stronger than expected property market recovery.

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