City Development - Respectable set of results; solid sales record

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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CapitaLand - Ready for asset acquisition

CapitaLand has allocated S$1bn to increase the capital base of its China, Vietnam, and Ascott businesses. This is positive and signals management’s appetite to take on risk. We believe asset acquisition could happen within 3-5 months and is a price catalyst. We think CapitaLand would remain residential-focused and would buy sites in Shanghai, Beijing, and Ho Chi Minh City.

We think CapitaLand’s issuance of S$1.2bn convertible bonds is a cost-efficient way of refinancing and securing long-term capital ahead of an acquisition. The debt maturity duration is now over 6 year from 4.4 as of December 2008. CapitaLand’s share price has lagged its Hong Kong peers by up to 20%. We thinkthere is scope for the performance gap to narrow as the company commences its capital deployment.

CapitaLand reported an H109 loss of S$114.1m due to net revaluation losses. Excluding one-offs, core Q209 PATMI was S$124m (+163% QoQ) on the back of contributions from China and Singapore residential property.

We include the non-cash revaluation losses into our model and reduce 2009E headline EPS by 60% to 5cts (from 13cts) with normalised EPS of 13cts. We increase our RNAV estimate to S$4.35 (from S$4.25) due to a 15% increase in expected launch prices for Singapore projects (in line with our residential forecast upgrade), mark-to-market listed REITs, and update our earnings forecast for Australand.

Stamford Land - Currency turning favorable

We can see that Australia Dollars (A$) plunged nearly 22% against Singapore Dollars (S$) from Jul ? Dec 2008. The sharp decline of A $ during this period resulted in huge translation losses for Stamford Land's FY09 result. Weaknesses in A$ prolonged and extended till around Mar 2009, when global economy was believed to have bottomed. Since Mar 2009, A$ managed to gain strength and recovered nearly 14% against S $. Current spot rate stands at about S$1.20/A$.

The recent 1Q10 results of Stamford Land clearly portrayed the positive impact of stronger A$ to its financials. Foreign currency translation reserve increased from a negative S$16.7m to a positive S$18.6m. The improvement inevitably lifted Stamford Land's total equity value.

Taking Bloomberg's year 2010 consensus forecast of S$1.19/A$ by various international lenders into account, we believe that current strength of A$ can be sustained and valuation of Stamford Land can have room to improve.

In consideration of future sustainable strength of A$ against S$, we imply a 10% appreciation of A$ into FY10E, and a further 5% for FY11E. On top of that, we also reduced the capitalization rate of Stamford Land's hotel properties from 6.5% to 6.0% to be more inline with the gradual property market recovery in Australia. Our target price has thus been increased to S$0.48 and we upgrade Stamford Land to BUY.