SINGAPORE (May 14): City Developments Limited (CDL) on May 11 reported 1Q18 earnings ended March dropped 16.3% to $80.0 million from $95.6 million in 1Q17.
Revenue was 35% higher at $1.06 billion, compared to $783.7 million a year ago, propelled by the completion of The Criterion Executive Condominium (EC). This brought gross profit for 1Q18 came in at $363.1 million, 1.1% lower than $367.3 million last year.
See: City Developments posts 16.3% decline in 1Q earnings to $80 mil
Following the results announcement, CGS-CIMB Securities is keeping its “add” call on the CDL a target price of $13.41.
CDL’s office portfolio remains well occupied at 92.7% at end 1Q18, with 28.7% net lettable area (NLA) to be renewed for the rest of 2018 and 30.4% in 2019.
In a Friday report, analyst Lock Mun Yee says, “This will enable the group to leverage on the office leasing market recovery.”
Hotel operations, through M&C, reported higher profit before tax, thanks to disposal gain from the sale of the two Australian hotels by CDLHT as well as higher contributions from the REIT.
In terms of hotel operations, 1Q performance was mixed with most markets performing weaker with the exception of Asia and New Zealand. The group will continue to focus on repositioning its hotel portfolio and improving returns from its assets as well as be alert on acquisition opportunities.
RHB Research is also maintaining its “buy” call on CDL with a target price of $15.00.
The group’s earnings came in lower than consensus and RHB’s estimates, due to timing differences in the earnings recognition of its residential projects.
In a Monday report, analyst Vijay Natarajan says, “Still, the stock remains one of the better proxies for investors looking to tap into the impending recovery of the residential market, as the developer holds one of the largest residential landbanks in the sector.”
In addition, the outlook for its hospitality segment is also favourable, aided by improving global tourism demand and the growth in corporate travel.
Natarajan also expects the group to participate in more acquisitions this year, aided by its lowly-geared balance sheet with a debt headroom of over $5 billion.
Maybank Kim Eng is reiterating its “buy” rating on CDL with an increased target price of $14.20.
In a Monday report, analyst Derrick Heng says, “With a solid launch pipeline of over 3,000 units, we see CDL as a key beneficiary of the strengthening residential market.”
Meanwhile, a potential sale of two office buildings under the PPS 2 structure will also drive upside to the analyst’s valuation.
CDL and Alpha Investments Partners have put two office buildings under the PPS 2 structure up for sale. CDL injected three office assets – Manulife Centre, 7 & 9 Tampines Grande and Central Mall (Office) – into a PPS 2 structure in Dec 2015 and are now looking to capitalise on stronger office values with a sale.
“Asking prices for Manulife Centre and Tampines Grande reflect premiums of 13% and 23% over their initial cost. After accounting for Alpha’s preferred returns, we estimate a surplus of 6 cents for CDL if sold at their asking prices and is a potential upside to our valuation,” says Heng.
As at 11.27am, shares in CDL are trading 11 cents lower at $12.42 or 1.2 times FY18 book with a dividend yield of 1.4%.
