City Developments 01 (May 09 - Oct 16)

[LenaHuat]

I've not posted M&C's NZ and CDL's NZ Investments here. Pl read them at the SGX site.
One can see that mgmt is pessimistic abt the very negative outlook on NZ.

[winston]

Not vested.

City Developments, Southeast Asia's second-biggest property developer by market value, posted a 15 percent fall in its second quarter net profit to S$165.2 million ($117.6 million) as property sales slumped in the first half of this year.

[ishak]

OUTPERFORM Maintained
Target: S$13.05
Mkt.Cap: S$9,639m/US$6,866m
Property Devt & Invt

• In line. 1H08 core net profit of S$328m forms 53% of our full-year estimate and 51% of consensus. The results were good, when compared with peers. 2Q08 revenue inched up 1% yoy as weaker hotel contributions diluted the impact of stronger property development revenue. Property development revenue in 2Q08 improved 4% to S$219m on recognition of pre-sold projects. Stripping out a onetime tax-credit gain in 2Q07, net profit would have flat yoy in 2Q, rather than down.

• Earnings momentum to persist. Proceeds from launched projects such as Shelford Suites (77 units, ASP S$1,550psf, 16 units sold) and Livia at Pasir Ris (720 units, ASP S$650psf, more than 300 units sold) have not been booked. We estimate accretion in 2H08. We estimate that the group still has over S$4bn of presale revenue for recognition.

• Strong balance sheet could provide opportunities. Net gearing crept up from 0.48x in 1Q08 to 0.52x in 2Q08. CityDev does not revalue its commercial assets at market values but assuming it does, management guided that net gearing would have been 0.3x. The group plans to issue a S$1bn Islamic multi-currency mediumterm note programme. While it is in no urgent need of financing, we sense that it is positioning itself to bottom-fish. Interest cover improved to 11.7x from 9.7x in 2Q07.

• Edge in market timing. The group has many sites acquired at low costs (Figure 1), providing a margin buffer should physical prices correct further. Low holding costs for The Arte and The Quayside Collection, which could be released in 2H08, underscore this. Recent RNAV-accretive divestments of Millennium Seoul Hilton Hotel and Commerce Point further testify to its astute commercial decision-making.

• Valuations appealing even on revised RNAV. We continue to be conservative in this stage of the cycle. Our FY08-10 core EPS estimates have been lowered by 1-8% on an additional 10-20% cut in ASP assumptions and lower hotel contributions. Our end-CY08 RNAV and target price have been lowered from S$14.05 to S$13.05 on lower market valuations for M&C and lower ASP assumptions. We assume that CityDev’s mid-high-end properties will sell for 20% less than current transacted prices while its commercial assets will trade at cap rates of 5.5%. Trading at a 19% discount to our revised RNAV, the stock remains attractive. Maintain Outperform. CityDev remains our top pick in the sector.

[ishak]

CDL to raise $1 billion
Move is milestone in S’pore’s push to develop alternative mode of investment
todayonline, 15 Aug 2008

CITY Developments (CDL) is raising $1 billion in Islamic debt through a pioneering notes programme as a means to diversify its sources of financing.

This will be Singapore’s first Islamic Sukuk-Ijarah unsecured financing arrangement by a company, marking a milestone in the Republic’s push to develop Islamic finance as an alternative mode of investment.

These notes are meant for institutional investors. CDL executive chairman, Mr Kwek Leng Beng, said he has already received some interest from investors from the Middle East flushed with petrodollars.

The timing is good now as it opens another source of funding for CDL at a time when banks are cautious when it comes to financing for property projects, said Mr Kwek.

“We don’t actually require a lot of money, this is what I call a war-chest,” he added.

Malaysian bank CIMB is helping CDL with this sukuk or Islamic bond issue. A sukuk has structures developed to meet Islamic transactional rules relating to asset possession, measurements and transactions.

Compared to conventional bonds, there are some restrictions on the type of assets investors can earn money from, explained Mr Kwek.

Sukuk bondholders are paid income derived from assets such as rent from property because Islamic law bans lending for interest.

Assets like a hotel with a bar or a casino are not allowed. CDL’s bond will be backed by office property that does not house banks.

When asked if other local property players may follow suit, Mr Kwek said, “Of course they will. People in Singapore like to follow one another, but it’s up to participants whether they are interested to deal with other parties.”

[ishak]

Previous Day Closing price: $10.44
Recommendation: BUY (maintained)
Target price: $13.20 (reduced from $13.94)

Relatively strong earnings
City Developments (CDL) reported a 1H08 net profit of $330.1m (46% of our full-year estimate), largely in line with our expectation. On a reported basis, this represented a 3% improvement YoY, but excluding the tax write-back in 1H07, PATMI actually grew 15.4% YoY. Revenue remained flat at around $1.5bn.

Earnings underpinned by property development
Property development accounts for a substantial 63% of CDL’s 1H08 PBT, compared to 56% in 1H07. The Group has started recognising profits from Cliveden at Grange and has also attributed the stronger pre-tax profits to higher profit margins for projects launched in recent years. More recently, CDL has sold 16 units at Shelford Suites ($1,500-1,600 psf) and more than 300 units at Livia ($650-670 psf).

Credible contribution from M&C
Millennium & Copthorne Hotels (M&C) accounts for 26% of CDL’s 1H08 PBT, with its pre-tax profit improving 9.2% YoY. Overall, M&C’s Group RevPAR rose 6% for 1H08 at constant exchange rates, with every region experiencing RevPAR improvements, except in the US, which remained flat. The Group will continue its expansion into key gateway cities in Asia and the Middle East.

Selective divestment of non-core assets
CDL has divested Commerce Point for a consideration of $180.7m (about $2,200 psf). It will book in a pre-tax gain of approximately $40m in 3Q08. In addition, M&C is also in the process of selling the Millennium Seoul Hilton Hotel, which will result in a hefty $425m pre-tax gain for CDL. As the sale has not been completed, we have yet to include this gain, which could translate to a $0.15 increase in RNAV.

Enviable position in uncertain times
The Group currently has a net gearing of about 0.5x. Including fair value gains on investment properties, the Group estimates net gearing to be closer to 0.3x, putting it in a very comfortable financial position to make acquisitions when opportunities arise. We believe its unlaunched landbank remains profitable and we maintain our BUY recommendation, with a target price of $13.20 pegged to RNAV.

[ishak]

Bolstering its war-chest with S$1bn Islamic MTN issue

Laudable 2Q08 results. City Developments Ltd (CDL) turned in a laudable set of results for 2Q08. While revenue growth for 2Q08 was flat, increasing by 0.7% YoY to S$780.8m, this was largely due to the weakening of the sterling pound and USD against SGD which led to the 2.8% decline in revenue. Operationally, its hotel operation performed well as revenue per available room (RevPAR) rose 6.8% YoY in 1H08. Despite the current tough market conditions, operating profit grew at an impressive 27.4% YoY to S$225m. Weaker contributions from development projects by jointly-controlled entities and the absence of an S$59m write-back of overprovision of tax in 2Q07 due to changes in UK tax legislation on hotel tax allowances and reduction in tax rates in various regions were the reasons behind the 15.1% decline in 2Q08 net profit.

Strong financial position. CDL's financial position still remains strong, despite net gearing ratio trending slightly higher from 48% at the end of 2007 to 52% at the end of 2Q08. Unlike other developers, CDL does not account for any fair value gains on investment properties. Management pointed out that if its investment and hotel properties are valued at current market valuation, its net gearing ratio would fall to below 30%.

Issuing S$1bn Islamic MTN to bolster war-chest. CDL announced that it will be issuing Singapore's first Islamic Sukuk-Ijarah unsecured financing arrangement, under a proposed S$1bn Islamic Multi-Currency Medium Term Notes (MTN) Programme. Given that CDL's gearing position is still healthy, the rationale for the fund raising is to bolster its war-chest for growth opportunities in the future. Management expects financing terms to be at least similar, if not, more attractive than conventional funding sources and further announcement on this will be made in the near future.

Outlook ahead. For 2H08, CDL plans to launch phase 2 of Livia (200 units out of remaining 364 unlaunched units), The Arte at Thomson (100 out of 336 units) and The Quayside Collection at Sentosa Cove (100 out of 228 units). Having announced the disposal of Commerce Point and Millennium Seoul Hilton Hotel in 2Q08, CDL is expected to recognize the respective gains of ~S$40m and £155m for these 2 properties in 2H08. We are currently reviewing our rating on CDL.

[ishak]

BUY S$10.44 STI : 2,816.66
Price Target : 12-month S$ 12.16 (Prev S$ 12.90)
Reason for Report : 2Q08 Results
Potential Catalyst: Upcoming project launches, new opportunities aligned to Islamic MTN Programme

Summer in the city
Story: City Dev’s 2Q08 results saw revenue inch up 0.7% y-oy at S$780.8m, leading to a dip in PATMI of 15% to S$165.2m. However, this included a one-off tax credit that was granted by the UK government in 2Q07 to all hotel businesses in the UK, and was recorded in M&C’s book. Stripping this off, 2Q08 PATMI would have seen a 0.6% increase contributing to a 1H08 PATMI growth of 15.4% to $330.1m. Its property development segment of the business continues to be the main contributor to earnings, accounting for 63% of 1H08 PBT. The sale of Millennium Hilton Seoul at ~£232m had been passed last week at M&C’s EGM, and will be completed in 2H08 – and City Dev guided that this would result in a ~£155m pre-tax profit for M&C (53% owned by City Dev).

Point: 2Q08 saw the launch of Shelford Suites as well as the mass-market Livia at Pasir Ris. While Shelford’s sales have
been generally slow in tandem with the challenging higherend property market, Livia has been seeing good sales relative to physical market sentiment. In uncertain economic times, nobody should be looking for a sell-out for a large massmarket project like this, and City Dev’s success with Livia is testimony to its proven track record as a local developer. In 2H08, it plans to launch the second phase of Livia (another 200 units).

Relevance: City Dev’s 1H08 results continue to support our call on the stock as the top pick among the Big Three, with it being the only one to show y-o-y profit growth based on core earnings. We believe this is due to its leading position in the S’pore residential market, with nearly c.S$6bn of residential sales in FY06-07. Earnings visibility for the next two years continues to be assured. Maintain BUY, TP S$12.16 (prev S$12.90) based on a 10% discount to its RNAV of S$13.52 (prev S$14.35). The reduction in RNAV is a result of lower market values of its stake in M&C and CDL HT, and higher construction cost assumptions going forward.

[millionairemind]

0335 GMT [Dow Jones] Goldman Sachs keeps City Developments (CO9.SG) at Sell but cuts target price to S$9.80 from S$10.50; notes 2Q08 profit came in below house forecast, down 15% on-year at S$165 million. "In the hotel sector, contribution from Millennium & Copthorne (M&C) was negatively affected by FX rate movement with M&C seeing group RevPAR up 6% at constant exchange rates in 1H," says GS in note. Lowers EPS estimates by 12.5%/14.5% for FY08/09, delaying profit recognition of residential projects. Expects CDL may be vindicated by holding back high-end project launches until market conditions improve; but warns, negative headwinds on residential particularly high-end, global hospitality "premature to turn positive." Shares last down 1.9% at S$10.24. (PVA)

[millionairemind]

Hello analysts.. can get some consensus or not?? This is almost a gap of 30% difference between the 2 companies..

0335 GMT [Dow Jones] Goldman Sachs keeps City Developments (CO9.SG) at Sell but cuts target price to S$9.80 from S$10.50;

City Developments
Aug 15 close: $10.18
CIMB-GK RESEARCH, Aug 15

CITYDEV'S H1 2008 core net profit of $328 million forms 53 per cent of our full-year estimate and 51 per cent of consensus. Stripping out a one-time tax-credit gain in Q2 2007, net profit would have been flat y-o-y, rather than down.

This is a good set of results, with stronger property income. We estimate that the group still has over $4 billion of presale revenue for recognition. It plans to issue a $1 billion Islamic multi- currency medium-term note programme, possibly to position for bottom-fishing. Our FY2008-10 core EPS estimates have been lowered by 1-8 per cent on average selling price (ASP) cuts and lower hotel contributions.

Our end-2008 calendar year RNAV and target price have been lowered from $14.05 to $13.05 on lower market valuations for Millennium & Copthorne Hotels and ASP assumptions. The stock trades at a 19 per cent discount to our revised RNAV. Maintain 'outperform'.
OUTPERFORM

[ishak]

Singapore Residential Sales Update – BUY
July sales the highest this year
The month of July saw the most number of units launched by developers this year, 1310 units to be exact, compared to June’s 1063 units. Take-up rates remained fairly healthy, with 700 units of the 1310 launched sold, while a total of 896 units were sold in the primary market in July.

Targeting mass appeal
The bulk of launches and sales arose from the Outside Central Region (OCR), the region that is proxy to the mass market segment. The main contributor was the sale of units at Livia, where 301 units of 360 launched were sold at a median price of $671 psf. Kovan Residences also recorded the sales of another 87 units at a median price of $882 psf. Elsewhere, in the Rest of Central Region (RCR), Clover by the Park also posted the sale of 100 units (median price of $753 psf) and 61 units at Beacon Heights were sold at a median of $865 psf. We believe that developers timed their launches ahead of the Hungry Ghost Festival in August to target the captive demand from HDB upgraders in the vicinity of their respective projects, as well as to capitalise on the sales momentum noticed in June.

Prices not letting up in primary market
We do not see any clear indications of prices letting up in the primary market. Comparing the more significant launches, prices appear to be holding, with the slight dips likely to be because the more attractive units (e.g. better facing, higher level) were sold at the earlier stages of the respective launches.

Secondary market provides little evidence
Transaction activities in the secondary market remained little changed in the month of July, with 625 transactions, compared to 619 in June. Anecdotal evidence from a selected list of developments shows that prices may be softening in some cases with some possible distressed sales, but due to the low number of transactions, it is not significant enough to conclude that prices in the secondary market have fallen drastically.

Construction costs weigh on developers’ minds
As construction resources continue to be tight amidst the construction boom, costs remain a concern for developers yet to lock in their construction contracts. We do not foresee mass market projects falling below $650 psf in the near term, as the cost of construction now form over 50% of total development costs. Moreover, it may take some time for that to translate to lower land prices via the Government Land Sales programme. The recent tender for the confirmed site at Tampinese Ave1/Ave 10 drew a single low bid of $118 psf, which we think could possibly be below the reserve price.

Caution still necessary in the medium term
Despite rather encouraging sales figures in the last 2 months, it remains to be seen how long the weak sentiments will persist, as concerns with the global economic slowdown and inflation remain. We believe that home prices will probably not correct by more than 10%. The key risk is the duration and extent of the slowdown, which could further weaken sentiments. We maintain our BUY recommendations on City Developments (TP: $13.20) and Wing Tai (TP: $2.57), both of which have healthy balance sheets and rather versatile landbanks in Singapore to cater to the market dynamics.