SINGAPORE (Nov 9): City Developments reported a 10% y-o-y rise in 3Q18 earnings to $162 million. Revenue jumped 18% to $1.02 billion.
The better performance was largely due to higher residential development profits as well as a $12 million pre-tax gain from the sale of a property in Jalan Besar.
Gross profit margin held relatively steady at 47.8% in 3Q18 vs 49.5% in 3Q17.
See also: CityDev posts 10.4% rise in 3Q earnings to $161.8 mil
CGS-CIMB Securities says CityDev’s 3Q18 results came within expectations.
“For the 9M net profit of $447 million is up 25% y-o-y and makes up 75% of our FY18 forecast,” says analyst Lock Mun Yee.
Year to Sept, CityDev has sold 787 units with a total sales value of $1.8 billion, with New Futura and The Tapestry being the key contributors.
It plans to market Amber Park en bloc, Handy Rd, Sumang Walk EC and Sengkang Central in 2019, totalling 1,754 units.
RHB Research analyst Vijay Natarajan says post-cooling measures, takeup rates at its newly-launched projects -- The Jovell, South Beach Residences and Whistler Grand -- have been fairly steady at 20-67%.
However, the slightly better sales came with lower margins, in particular Whistler Grand, where he expects margins to be at mid-single digits, at best.
“We cut our margin assumptions to mid-single digits for its upcoming projects – Amber Park, Handy Road site and Sumang Walk EC – as buyers have become much more selective and price-resistant post-cooling measures,” says Natarajan.
CityDev also expanded its UK presence by acquiring two Grade-A commercial properties for $1 billion.
The freehold properties come with long lease terms, mitigating some near-term Brexit concerns. The relatively low borrowing cost of 2% will also help enhance their current passing yields of 4.7-5%.
“With low gearing of 23%, we do not rule out the possibility of further acquisitions of investment properties in the UK and China,” says Natarajan.
In 3Q, hotel PBT halved to $37 million due to income vacuum from the closure of Millennium Hotel London Mayfair in July as well as the lower contribution from Millennium Hilton Bangkok which is undergoing refurbishment. Group Revpar fell 3.8% in YTD Sept.
Lock says trading conditions remain challenging and management is expected to continue to manage costs, look at product innovation and flatten management structure in M&C to enhance competitiveness.
CityDev began buying back its stock in August. It has since bought 2.4 million shares from the market at range of $8-9.55/unit.
“We leave our FY18-20 profit projections unchanged but revise our RNAV to reflect changes in market price/TP of M&C and CDREIT as well as adjust for a smaller share base post its 1.7 million of share buybacks. Accordingly our target price is lowered slightly to $10.65, pegged at an unchanged 35% discount to RNAV,” adds Lock of CGS-CIMB which has an “add” for the stock.
“Maintain “neutral”, lower target price of $9.20. We trim our RNAV estimate by 4% to $15.33, factoring in the lower margins and marking to market its listed M&C portfolio,” says Natarajan.
Year to date, shares in CityDev are down by a third to $8.46.
