2 reasons behind City Dev's bearish 2Q12 results

Find out why City Dev's earnings fell 38% to S$138m in 2Q12.

According to DBS, 2Q results dragged by timing of residential billings and lack of one-offs.

Here's more from DBS:

City Dev reported 2Q12 earnings of S$138m, down 38% y-o-y on 19% lower revenue of S$788m. The weaker results were largely due to a high base last year with divestment gains while residential profits were down 20% y-o-y as pre-sold projects such as H2O Residences, The Palette, Bartley Residences, Rainforest and Blossom Residences have yet to reach recognition stage.

This was partly offset by stable earnings from hotel and higher rental operations. For 1H12, the group achieved net profit of S $294m, down 42% y-o-y. Stripping out one-off gains, group performance was on par with 1H11 and made up 43% of our full year forecast.

More launches but margins likely to narrow. Going forward, residential profit would be supported by locked-in sales of S$1.25bn in 1H12 as well as S$1.75bn and S$2.1bn pre-sales achieved in 2011 and 2010 respectively. However, we believe gross margins are likely to narrow as the group launches more GLS sites, which were acquired at current land costs.

It targets to offer three projects totalling 497 units in 2H12 including Serangoon, Alexandra Rd and Pasir Ris Parcel 5. Management is also more cautious and more selective on landbank locations. Hotel contributions were the second largest contributor with Revpar growing 4.6% globally. Singapore led the way at +6.1% while post renovation works at Millenium Seoul Hilton saw room rates jumping 17%.

Going forward, the group’s focus is on driving Revpar growth through optimising room rates and occupancies as well as undertaking substantial refurbishments of key hotels in Seoul, New York, Taipei and London. Rental income is supported by portfolio occupancy of 94%.

Construction of South Beach has commenced while City Square Mall has two new anchor tenants commencing operations in 4Q12. The group has further divested non-core properties and gains to be recognised in 2H12.

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