City Dev

City Dev: 2Q15 results missed estimates, as net profit dipped 3.2% to $133.5m, taking 1H15 net profit to $256.5m (-0.4%) and forming 41% of full year estimates.

Revenue of $824.9m (-4.2%) was fed by contributions from property development projects (-17.8% to $268.8m), hotel operations (+1.3% to $421.7m), rental properties (+8.9% to $91.8m) and others (+31.6% to $34.4m).

The decreases in property development sales were mainly due to absence of income from Buckley Classique which obtained TOP in 3Q14 and reduced contribution from H2O Residences which obtained TOP in 2Q15 and The Palette. The decreases were partially offset by maiden contribution from Coco Palms, and higher contribution from UP@Robertson Quay and Jewel @ Buangkok.

Consequently pretax profit for the property segment fell 8.4% to $78.1m, partly mitigated by the share of profit contribution from The Rainforest, a JV EC, which profit was recognised in entirety when the project obtained TOP in 1Q15.

Hotel operations was underpinned by a 2.8% improvement in global RevPar at Millenium & Copthrone, as well as five new hotels acquired in 2014 and better performance from refurbished hotels. This was partially offset by reduced contribution from Singapore hotels as a result of increased room supply, lower visitor number and the absence of contribution from Cityview Place Holdings. This led to a 8.7% decline in hotel pretax profit to $68.9m.

Performance of rental properties was relatively steady, with pretax profit showing a marginal increase of 3.5% to $34.3m.

Others segment was led by higher income from building maintenance contracts and project management, while pretax profit jumped up almost 5x to $9.6m, fuelled by gains from realisation of investments in a private real estate fund.

Going forward, CDL guided that the operating environment in Singapore is expected to stay challenging, while global outlook remains uncertain. The group aims to actively pursue its
unlisted funds management business, and also has plans to launch some of its residential projects in UK and China,.

The group expects its diversification strategy to gather momentum and prominence in the next few years and is expected to remain profitable for the current year.

Going forward, Maybank-KE believes that as one of the largest local developers, CDL is a good proxy to benefit from any potential relaxation of cooling measures by the Singapore government, while further plans to diversify geographically could also underpin its medium-term growth.

CDL currently has a net gearing of 28% and trades at 0.96x P/B and a 33% discount to its RNAV of $13.41.