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City Developments Ltd (AmFraser Singapore) buy; fair value S$12.72

Sterling set of results from property sales

  • Net profit reported by City Developments Ltd (CDL) surged 68% YoY to S$139mil for 1QFY10. It met 22% of our FY10F forecast and 21% of consensus estimates. Earnings had benefited from improvement in all three business segments YoY ranging from 18% to 91%. The biggest jump came from office rental as CDL recorded a S$35mil gain from disposal of its North Bridge Commercial Complex. Net finance costs had been cut by S$16mil (91% reduction) mainly due to higher fair value gain of financial assets.


  • Progressive revenue recognition came from One Shenton, Cliveden at Grange, Shelford Suites, Wilkie Studio, Livia, The Arte and Tribeca. Property development revenue jumped 52% YoY to S$301mil. Including joint-ventures, we estimate CDL to have sold 307 units in 1QFY10.


  • Two projects were launched during the quarter. 228-unit The Residences at W Sentosa Cove had an initial launch phase of 56 units in March 2010. Approximately half were reportedly sold. From Urban Redevelopment Authority (URA) data, it achieved an average selling price (ASP) of S$2,816 psf. It was 4% above our ASP assumption of S$2,700 psf. Within Sentosa Cove, primary sales of Marina Collection had averaged one unit per month ranging from S$2,300 - S$2,500 psf. Resale transactions of The Coast @ Sentosa Cove had averaged two units per month year-to-date at an ASP of S$2,197 psf. CDL believes supply limitation of 2,200 units coupled with a fully functional Resorts World Sentosa will lift prices higher on the island in the long term and intends to set aside 100 units for investment or en bloc sales.


  • 429-unit Tree House, land tendered from URA in August 2009, was launched in April 2010 at an indicative price range of S$750 - S$850 psf. It is situated at Chestnut Avenue within close proximity to Bukit Timah Nature Reserve. CDL had reportedly sold 97% of launched units. In addition, CDL replenished its landbank with a land tendered for S$365 psf per plot ratio in Sengkang West Avenue. The 99-year leasehold site can be built into a 24-storey condominium with a gross floor area of 550,000 sq ft. Our breakeven estimate and ASP assumption are S$615 psf and S$738 psf respectively. With a dearth of condominium housing in Punggol area, we expect this project to be a sell-out.


  • CDL will be launching another two new projects in 2HFY10F. One of them will be a 157-unit condominium (former Concorde Residence) at Thomson Road while the other is a 642-unit joint venture project in Pasir Ris next to Livia. Our ASP assumption are S$1,500 psf and S$700 psf respectively.


  • Earnings from hotel operations increased 73% YoY to S$36mil in 1QFY10. Group’s overall RevPAR reversed its declining trend, rising 3% to Pound Sterling 52 on back of improving occupancy rates in most regions. Portfolio occupancy rate also rose by 3% YoY to 67% though average room rate still registered a fall of 2% to Pound Sterling 77 on constant currency terms. Results were in line with expectations with the strongest growth coming from Singapore amid a focus on cost control.


  • Occupancy rate for CDL’s office portfolio stands at 93.5% end April 2010, up almost 2% QoQ. Newly completed office buildings had experienced strong take-up rates with encouraging signs of office rental bottoming.


  • Net gearing remains unchanged QoQ at 0.4x in 1QFY10. Strong residential property sales generated almost S$100mil in operating cashflow with CDL retaining S$947mil cash on hand as at 1QFY10.


  • Our revised RNAV estimates stand at S$12.72/share. Pricing it at parity, our fair value stands at S$12.72/share. CDL remains well-positioned to capture current exuberant residential demand with an estimated landbank of 9mil sq ft GFA. We maintain our BUY recommendation.
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